When the $2 billion Sears pension fund was restructured three years ago following an asset/liability study, the allocation for international equities was set at close to 20 percent.

"We subsequently decided to commit 15 percent of the non-U.S. portion to emerging markets," says Jonathan Leight, Manager of International Equity Strategy at Sears, "with the simultaneous goals of boosting returns, broadening diversification and mitigating the overall plan volatility. Now, with about three percent of total assets invested in emerging markets, we are at the aggressive end of the pension fund scale. Nevertheless, we believe the economics of our plan justify our strategy."

While the Fund’s emerging markets exposure was initially achieved with passive investments, Sears now has three actively managed portfolios. One focuses exclusively on emerging markets in Latin America, one has a global emerging markets mandate, and the third focuses on Asia (excluding Japan) with 60/40 split between emerging and developed markets.

Ironically, Sears entered emerging markets just as the 1994 Mexican peso crisis was unfolding. "The ride was rough at first," Leight recalls, "but since then the recovery has been spectacular." By now, emerging markets investors seem better able to take events like currency devaluations in stride. Although the peso’s fall initially had a global ripple effect, the damage caused by the recent devaluation if the Thai baht was largely confined to the Asia region.