U.S. managers delve into European start-up companies Exchanges post gains, but they could be short-lived

Mutual funds

June 21, 1998|By Bill Barnhart | Bill Barnhart,CHICAGO TRIBUNE

Over the past several years, Americans and Europeans have been marking with solemn remembrance and, in some cases, joyous celebration the momentous events 50 years earlier that established the two continents' special relationship during World War II and its immediate aftermath.

The D-Day landing, the Marshall Plan, the creation of NATO -- these and other milestones help make up the legacy once known as hands across the sea.

Today, U.S. mutual fund managers see the beginning of a new relationship, built on small-capitalization stocks: Hands across the sea are grabbing extraordinary equity returns in European start-up companies. Whether this step in the relationship will be one for the history books remains to be seen.

Unlike the United States, which spawned an entrepreneurial class after World War II, Europe is only starting to foster high-growth small businesses and small-business financing through venture capital and Nasdaq-like electronic markets.

According to conventional analysis, European culture did not appreciate entrepreneurs -- until now. The global economy has forced policy makers to recognize their job-producing potential. And Europeans, facing many of the same retirement uncertainties as their American cousins, are buying stocks like never before.

Cafes, pubs and beer halls now hold investment-club meetings. The European press, sounding like a bunch of new MBAs, gushes about the new "culture of equities" and describes as inevitable the growth of a new economic system based on maximizing shareholder value.

Nearly every U.S. investor knows something about the entrepreneurial success story of Microsoft Corp., which began in a Harvard University men's dormitory room more than 20 years ago. But how many Americans know about Systeme, Anwendungen, Produkte in der Datenverabeitung -- better known, mercifully, as SAP -- which was founded in Walldorf, Germany, in 1972 and is now the world's leading provider of business software?

Over the last 12 months, Microsoft stock has gained 43 percent on the Nasdaq stock market; SAP has soared 211 percent on the Frankfurt Stock Exchange.

The hunt for the next SAP has spawned European stock exchanges for small, risky companies. American fund managers, looking for greener pastures beyond the been-there, done-that U.S. small-cap market, are watching these exchanges and occasionally taking a plunge.

The Nouveau Marche in France, the Neuer Markt in Germany, the Dutch NMAX, the Belgium EuroNM and the pan-European EASDAQ provide screen-based trading in small-cap stocks, with an emphasis on high-technology, entrepreneurial companies. Nasdaq is soliciting European listings aggressively.

"The existence of these markets and the great performance of many of the stocks on them shows us the light [of entrepreneurship] is there; the fire has started," said Gerald Moran, co-manager of the Kemper Global Discovery Fund.

Moran and his partner, Sewall Hodges, have purchased several stocks listed on the new European exchanges. But they recognized that the fire probably will burn investors in the not-too-distant future, and they've sold many holdings after remarkable short-term gains.

Few observers doubt that many stocks on the new small-cap markets will undergo a shakeout soon.

"You could have some serious valuation changes here," Hodges said.

If entrepreneurial markets in Europe come to be seen as a plaything for U.S. fund managers, sentiment in Europe favoring the growth of these markets could sour, along with trading liquidity. Nobody wants to find the hands across the sea in their pockets.

Pub Date: 6/21/98

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