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Über dieses Buch

This book explores the origins and development of the asset management profession in Britain as a distinct activity within financial services, independent of banks and stockbrokers. Specifically, it identifies the main individuals and institutions after 1868 who established the profession. The book draws a distinction between banks (short-term deposit-taking) and asset management (an investment service with longer-term objectives). It explains why some banks fail but asset management businesses generally do not. It argues that asset management has been socially useful and has had a beneficial impact on the development of securities markets by offering choices to savers as an alternative to banks, improving the efficiency of capital allocation, re-cycling excess savings productively and enabling a range of investors - from institutions to individuals - to benefit from thoughtful, long-term investing.

Inhaltsverzeichnis

Frontmatter

1. Introduction and Overview

Abstract
The asset management profession developed and became established in Britain after 1700. Organised borrowing, supported by the Bank of England and government, developed rapidly as did savings vehicles after 1850 in the form of life assurance, pooled vehicles and pension funds. This work concentrates on the people (Maynard Keynes, Robert Fleming, George Ross Goobey) and the institutions (Foreign & Colonial, M&G) who built the foundations of world-class expertise in asset management, independent from banks. Crises such as the 1929 Crash and the First World War accelerated change in the profession. By 1900, asset management was firmly established as a discrete activity in Britain; it had failed after 1800 in Holland and only became reputable in the USA after about 1930 with people such as Benjamin Graham and organisations like Wellington.
Nigel Edward Morecroft

2. Markets and Insurance Company Investments, 1700–1900

Abstract
After 1700, financial markets in Britain developed rapidly in terms of borrowing and saving. Borrowing, underpinned by a stable financial system, was built around the Bank of England and a reliable government bond market, particularly after 1752 with the introduction of a risk-free asset. After the South Sea Bubble crisis, two insurance companies, the Royal Exchange and London Assurance, thrived. Life assurance subsequently developed rapidly with the Equitable, Scottish Widows, Standard Life and actuaries (William Morgan, A.H. Bailey) became increasingly influential. Insurance companies helped money and government bond markets to develop in the eighteenth century and securities markets (corporate debt and international securities) in the nineteenth. They funded developments such as the Bridgewater Canal, Regent Street (retail) and Belgravia (residential). Insurance companies were the first institutional investors.
Nigel Edward Morecroft

3. Philip Rose and the First Investment Company, 1868–1883

Abstract
The Foreign and Colonial Government Trust, an investment company (investment trust or closed-end fund), was instrumental in shaping today’s asset management profession. Overend Gurney, a bank, failed in 1866 so Foreign & Colonial as a pure investment institution with a long-term horizon offered savers an investment channel that was quite different from the deposit channel. Its pooled fund structure made investment available to a wide spectrum of society so middle-class and lower-middle-class individuals, not just the very wealthy, could access it – it made investing available to the burgeoning middle classes in Victorian Britain. With an unusual embedded lottery feature it retained an element of gambling. It invested globally in high-yield, emerging market junk bonds so was risk-seeking within a diversified portfolio.
Nigel Edward Morecroft

4. Robert Fleming and Scottish Asset Management, 1873–1890

Abstract
Fleming, the dominant personality in asset management in the last 25 years of the nineteenth century, built firm foundations for asset management in Scotland at the end of the nineteenth century. In Dundee and Edinburgh, Fleming and others (William Menzies, William Mackenzie) ensured that the investment management profession developed in a beneficial direction based on research, analysis, stewardship, team-based investment decision-making, low fees and an optimistic view of the fledgling economy of the USA after the American Civil War. The cable telegraph allowed global investment to become possible so technological innovation was critical. The modern form of the quoted company, after the Guinness flotation in 1886, with limited liability in the form of ordinary shares, paved the way for new investment possibilities.
Nigel Edward Morecroft

5. Life Office Investment 1900–1960 and John Maynard Keynes

Abstract
Keynes, a world famous economist, was a prolific and skilled asset manager involved in a range of different investing activities. As chairman of the National Mutual, a life office, he was an investment visionary: he provided insurance companies with an investment blueprint for their future success and he was a successful, innovative investor despite occasional difficulties after the 1929 Crash. Keynes, helped by Harold Raynes (Actuary at Legal & General), beneficially influenced the path of asset management after 1919, particularly within life offices, but life offices could have been more successful as investing institutions had they listened to Keynes more carefully and acted more decisively. By the time of Keynes’ death in 1946, insurance company investment practice was changing.
Nigel Edward Morecroft

6. Keynes – Flawed Investor or Genius?

Abstract
Thirty years ahead of his time, and writing at the same time as Benjamin Graham, Keynes’ determination, originality and willingness to take risks challenged the people with whom he worked and the institutions with which he was involved. Offsetting his occasional investment lapses was his tremendous capacity for original thinking both with his methods of asset management and also in the manner in which he described investing, particularly biases now referred to as ‘behavioural finance’. He possessed remarkable insights, about the nature of markets and investors, many of which remain relevant today. This chapter expands on his activities with life assurance companies by exploring his successes and failures at respectively Kings College, Cambridge (an endowment) and the Independent Investment Company (an investment company).
Nigel Edward Morecroft

7. George Booth and Ian Fairbairn: The First Unit Trusts, 1931–1960

Abstract
Unit trusts encouraged smaller savers and women to invest, despite the 1929 Crash, mainly into ordinary shares. Easy to understand, they contributed to a growing interest in equity investing, as indicated by the creation of the FT30 Index in 1935. The first unit trusts offered transparency in pricing, trusteeship and complete redeemability and were an antidote to the excesses of the 1929 Crash embodied by the Goldman Sachs Trading Corporation and other investment companies in the USA. Booth and Fairbairn of Municipal and General, a forerunner of the M&G Group, created and nurtured unit trusts through their extended 30-year, formative period in the UK and developed early ideas about ‘value’ investing. By contrast, mutual funds in the USA had a completely different, and much more rapid, pattern of development.
Nigel Edward Morecroft

8. George Ross Goobey, Revolutionising Pension Fund Investment, 1947–1960

Abstract
Ross Goobey transformed investment thinking about the relative valuation of asset classes, maximising returns, time horizons and volatility, so his investment ideas were applicable to many long-term investors. He understood that in inflationary periods real assets such as equities (and property) were more useful investments than bonds and should yield less than bonds owing to their growth potential, the ‘reverse yield gap’. He challenged actuarial thinking, persuaded defined benefit pension funds with positive cash flow to invest into real assets and ushered in a golden age for pension funds. He had unusual ideas about diversification in order to capture themes such as high yield and small cap. Similar to Keynes, he argued against much orthodoxy of the time.
Nigel Edward Morecroft

9. Observations from the Past

Abstract
From 1700 to 1960 in Britain, the people and institutions in this book shaped the asset management profession and demonstrated how asset management could operate effectively, practically and accessibly for insurance companies, pooled funds, pension funds and endowments. By 1960, these early British investors created an asset management profession with strong foundations and firm values. Important lessons can be learned from this formative period for asset management about portfolio construction, time-horizons, benchmarks, organisational culture, stewardship and social usefulness.
Nigel Edward Morecroft

Backmatter

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