| Mutual funds really captured the public's | | | | Commission (SEC), the passage of the |
| attention in the 1980s and '90s when mutual | | | | Securities Act of 1933 and the enactment of |
| fund investment hit record highs and | | | | the Securities Exchange Act of 1934 put in |
| investors saw incredible returns. However, | | | | place safeguards to protect investors: mutual |
| the idea of pooling assets for investment | | | | funds were required to register with the SEC |
| purposes has been around for a long time. | | | | and to provide disclosure in the form of a |
| Here we look at the evolution of this | | | | prospectus. The Investment Company Act of |
| investment vehicle, from its beginnings in | | | | 1940 put in place additional regulations that |
| the Netherlands in the eighteenth century to | | | | required more disclosures and sought to |
| its present status as a growing, | | | | minimize conflicts of interest. (For further |
| international industry with fund holdings | | | | reading, see Policing The Securities Market: |
| accounting for trillions of dollars in the | | | | An Overview Of The SEC.) The mutual fund |
| United States alone. | | | | industry continued to expand. At the |
| | | | beginning of the 1950s, the number of |
| In the Beginning Historians are uncertain of | | | | open-end funds topped 100. |
| the origins of investment funds; some cite | | | | |
| the closed-end investment companies launched | | | | In 1954, the financial markets overcame their |
| in the Netherlands in 1822 by King William I | | | | 1929 peak, and the mutual fund industry began |
| as the first mutual funds, while others point | | | | to grow in earnest, adding some 50 new funds |
| to a Dutch merchant named Adriaan van Ketwich | | | | over the course of the decade. The 1960s saw |
| whose investment trust created in 1774 may | | | | the rise of aggressive growth funds, with |
| have given the king the idea. Van Ketwich | | | | more than 100 new funds established and |
| probably theorized that diversification would | | | | billions of dollars in new asset inflows. |
| increase the appeal of investments to smaller | | | | |
| investors with minimal capital. The name of | | | | Hundreds of new funds were launched |
| van Ketwich's fund, Eendragt Maakt Magt, | | | | throughout the 1960s until the bear market of |
| translates to "unity creates strength". The | | | | 1969 cooled the public appetite for mutual |
| next wave of near-mutual funds included an | | | | funds. Money flowed out of mutual funds as |
| investment trust launched in Switzerland in | | | | quickly as investors could redeem their |
| 1849, followed by similar vehicles created in | | | | shares, but the industry's growth later |
| Scotland in the 1880s. | | | | resumed. |
| | | | |
| The idea of pooling resources and spreading | | | | Recent Developments In 1971, William Fouse |
| risk using closed-end investments soon took | | | | and John McQuown of Wells Fargo Bank |
| root in Great Britain and France, making its | | | | established the first index fund, a concept |
| way to the United States in the 1890s. The | | | | that John Bogle would use as a foundation on |
| Boston Personal Property Trust, formed in | | | | which to build The Vanguard Group, a mutual |
| 1893, was the first closed-end fund in the | | | | fund powerhouse renowned for low-cost index |
| U.S. The creation of the Alexander Fund in | | | | funds. The 1970s also saw the rise of the |
| Philadelphia, Pennsylvania, in 1907 was an | | | | no-load fund. This new way of doing business |
| important step in the evolution toward what | | | | had an enormous impact on the way mutual |
| we know as the modern mutual fund. The | | | | funds were sold and would make a major |
| Alexander Fund featured semi-annual issues | | | | contribution to the industry's success. |
| and allowed investors to make withdrawals on | | | | |
| demand. | | | | With the 1980s and '90s came bull market |
| | | | mania and previously obscure fund managers |
| The Arrival of the Modern Fund The creation | | | | became superstars; Max Heine, Michael Price |
| of the Massachusetts Investors' Trust in | | | | and Peter Lynch, the mutual fund industry's |
| Boston, Massachusetts, heralded the arrival | | | | top gunslingers, became household names and |
| of the modern mutual fund in 1924. The fund | | | | money poured into the retail investment |
| went public in 1928, eventually spawning the | | | | industry at a stunning pace. More recently, |
| mutual fund firm known today as MFS | | | | the burst of the tech bubble and a spate of |
| Investment Management. | | | | scandals involving big names in the industry |
| | | | took much of the shine off of the industry's |
| State Street Investors' Trust was the | | | | reputation. Shady dealings at major fund |
| custodian of the Massachusetts Investors' | | | | companies demonstrated that mutual funds |
| Trust. Later, State Street Investors started | | | | aren't always benign investments managed by |
| its own fund in 1924 with Richard Paine, | | | | folks who have their shareholders' best |
| Richard Saltonstall and Paul Cabot at the | | | | interests in mind and who treat all investors |
| helm. Saltonstall was also affiliated with | | | | equally. |
| Scudder, Stevens and Clark, an outfit that | | | | |
| would launch the first no-load fund in 1928. | | | | Conclusion Despite its recent troubles, the |
| A momentous year in the history of the mutual | | | | story of the mutual fund is far from over. In |
| fund, 1928 also saw the launch of the | | | | fact, the industry is still growing, opening |
| Wellington Fund, which was the first mutual | | | | up new markets around the world. |
| fund to include stocks and bonds, as opposed | | | | |
| to direct merchant bank style of investments | | | | The first Korean mutual fund, the Mirae Asset |
| in business and trade. | | | | Park Hyun-joo Fund, was launched in Dec 1998. |
| | | | Today there are 20 trillion Korean won (about |
| Regulation and Expansion By 1929, there were | | | | US$19.32 billion) invested in Korea's funds. |
| 19 open-end mutual funds competing with | | | | In the U.S. |
| nearly 700 closed-end funds. With the stock | | | | |
| market crash of 1929, the dynamic began to | | | | alone there are more than 10,000 mutual |
| change as highly-leveraged closed-end funds | | | | funds, and if one accounts for all share |
| were wiped out and small open-end funds | | | | classes of similar funds, fund holdings are |
| managed to survive. | | | | measured in the trillions of dollars. Despite |
| | | | the launch of separate accounts, |
| Government regulators also began to take | | | | exchange-traded funds and other competing |
| notice of the fledgling mutual fund industry. | | | | products, the mutual fund industry remains |
| The creation of the Securities and Exchange | | | | healthy and fund ownership continues to grow. |