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Edited by Geoffrey Poitras
Chapter 5: The Evolution of the Managed Funds Industry: Investment Trusts in Nineteenth-century Britain
Elaine Hutson INTRODUCTION The managed funds industry has a long and chequered history. The pooling of securities to form investment funds can be traced to France in the late eighteenth century, when vehicles comprising life annuities issued by the French government were traded on the Paris bourse (Taylor 1962; Velde and Weir 1992; Poitras 2011). The first investment fund with an explicit diversification requirement was the Eendragt Maakt Magt (‘Unity Creates Strength’), founded in Holland in 1774 (Rouwenhorst 2005). Another early diversified fund was the Société Générale des Pay-Bas pour favoriser l’Industrie Nationale, which was created in Brussels in 1822 (Cassis 1990). However, it is the British funds of the late nineteenth and early twentieth centuries that are the direct antecedents of the modern managed funds industry. The managed funds industry in nineteenth-century Britain grew out of an investment environment that saw declining government bond rates and an immense expansion of the range of risky securities available. A series of speculative manias and panics in the first half of the nineteenth century made the concept of diversification appealing to a burgeoning middle class who wanted to protect their capital at the same time as preserving living standards in a climate of falling interest rates, but did not have sufficient funds to diversify efficiently on their own. The first British fund – the Foreign & Colonial Government Trust1 – was established in 1868. Listed on the London Stock Exchange, this fund paid a fixed dividend, and diversification was assured via a...
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