Despite having the widest array of the latest investment opportunities available, US plan sponsors seem to be happy to stay put as long as domestic equities outperform. They are even resisting the new quantitative models that will put them in better stead when the market bubble finally bursts or, at least, deflates.

The US public pension fund sector in particular is retaining its traditionally conservative approach, sticking with overweight positions in domestic equities with a modest international diversification. More esoteric areas such as emerging market debt are kept at a minimum. Having said that, private equity remains fairly popular, though staying within the US arena. The trend towards investing in US REITS has halted due to recent poor performance though they are likely to be a key recipient of fresh inflows once the equity markets settle down. Public plans remain resistant to international diversification while the domestic equity market remains strong. International property investment is also being kept on hold.

A similar story applies to inflation-indexed bond products, which have been marketed strongly by US and UK asset managers alike. Plans have been slow on the uptake because inflation is still in a downward phase, making such marketing efforts seem like selling ice in the arctic", says Jim McKee, quantitative consultant at Callan Associates in New Jersey. And global top-down money managers such as SBC Brinson Partners have been advocating a model that looks at asset allocation in terms of risk as opposed to return. They see this as the way forward in the next decade. But in the current market climate, plan sponsors are simply not biting.

Within the domestic equity sphere, sector rotation models have seen particular growth within the entire plan sponsor community. Sector rotation is a quantitative technique based on variables such as inflation or mutual fund cash flows to predict future market conditions, allowing investors to place bets on specific sectors or countries. First Quadrant now runs 20% of its $25bn assets in this way, and while State Street Global Advisors (SSGA) already holds 'sector positions', it is developing the model further in response to market demand. A similar product is now in the final stages of preparation for release in Europe, with a particular emphasis on European industry selection in preparation for EMU and the predicted move to-wards sector allocations.

Back in the US, 'enhanced' sector rotation is taking grip of the global fixed income arena, with plan sponsors downsizing and pushing the specialist fixed in-come managers aside in favour of large multi-disciplinary managers. These have the economies of scale and in-house research capability to coordinate a global effort in high yield, non-dollar and emerging market debt alongside traditional US fixed income securities.

All is not lost for international equity diversification, however. According to Intersec in Stamford, US funds invest over 10% of their portfolios in international assets totalling $556bn, with estimates that by 2002 this will have doubled to $1trn, or 15% of pension assets invested via global balanced, currency overlay, emerging equity and debt, private equity and international equity mandates.

For the average corporate plan sponsor, within that allocation, an increas-ed movement into emerging market equity and debt (up to 14%, according to Intersec end-1997 figures) signals at least an appetite for higher risk tolerance. SSGAs's emerging market business has grown approximately 25-30% in the last year despite market decline, says Alan Brown, CEO of SSGA in Europe.

But perhaps the most interesting trend taking place within the US pension fund market today concerns not where plans are investing, but who they are investing with. There is a strong anti-specialism movement amongst some plans, which are in-creasingly awarding larger mandates to fewer managers.

GTE's pension plan is a key example. It has handed over four mandates worth approximately $1bn apiece to large, multi-disciplined managers as an experiment in global asset allocation. The managers have to beat a benchmark set by GTE and add value to returns which the plan itself could achieve passively.

One of the official names for this move is 'strategic partnering', where plan sponsors are using fewer firms with multiple disciplines and may also have capabilities in tactically shifting between asset classes. Investment giants such as Goldman Sachs, JP Morgan, State Street, BGI and Capital Group are targetting this trend.

Can this be a move back to balanced management by the very advocates of specialism? "It's actually a combination," points out Janine Baldridge, senior consultant at Frank Russell in Tacoma. "I think the difference, as I look back 20 years, is the expectations for these firms to succeed are much higher. You're going to take both asset class timing bets and security specific bets. You're going to be an-alysed and evaluated on each of those bets. So if your product line isn't sufficiently robust then you as a strategic partner need to make sure that you are offering the clients the best."

Similarly, such strategic partners view themselves not as balanced managers but more as tactical global asset allocators in the sense that they are managing risk. The mandate does not stick to such stringent asset allocation fixtures as traditional balanced management. That is not to say that US plan sponsors have swung back from their traditional attraction to multiple managers to the days of hiring single firms. One US multinational pension fund in particular hires 25-30 managers for its US equity side alone. Some things never change."