THE H.B. TRIBUNE FRIDAY, NOVEMBER 18, 1927 AMERICAN “INVESTMENT TRUSTS.”

Hawke's Bay Tribune, Volume XVII, 18 November 1927, Page 4

THE H.B. TRIBUNE FRIDAY, NOVEMBER 18, 1927 AMERICAN “INVESTMENT TRUSTS.”

7JSHERE can be no doubt with regard to the urgent desire of American financial magnates to extend their lending activities in the British oversea dominions. With an immense volume of surplus capital behind them seeking investment they have to look abroad for outlets, and nowhere do they seem to recognise them as being so safe as in the countries under the British flag. That this is the case is well attested by the terms upon which they have already shown themselves as ready to provide very substantial amounts for Australian Federal and State Governments. Although these terms have, in a general way, been not so favourable to the borrowers as those secured on the London market, the difference has, been nothing so great as might have been expected from a consideration of their dealings in other foreign countries. There has been a vast flow of American capital to Europe, but so far as observation has gone, in no case, excepting with respect to national reconstruction loans, do the borrowers appear to have secured terms anywhere near as favourable as those extended to the Governments of -the Commonwealth and some of its component States. Some thought of these facts are prompted by the attention which is drawn by a Canadian journal to the rapid growth in the United States of lending agencies that are' new there though already well known in the Old Country. These take the form of what are known as “investment trusts.’’ It is said that no fewer than 150 of these associations have been incorporated in the United States during the last few months, most of them dealing almost exclusively with foreign securities. To give some idea of the magnitude of their operations, it is said that during the third quarter of the current calendar year four of thfem obtained new capital to the extent of 20 million sterling for investment in foreign bonds. It is, moreover, officially estimated that many hundreds of millions sterling are now behind these newcomers in the field of international finance, whose growth is considered to mean that a safe bridge has at last been found between the vast- store of American capital and the equally large demand for capital in Europe and elsewhere. It is more than probable that they have absorbed a large proportion of the loans floated for Australia in New York.

The investment trust was mainly of British origin. It is designed to give the investor of moderate means the same chance of enjoying the security of diversified investment that the wealthier man or company gets through large capital and skilled supervisors. Until recently the comparatively undeveloped southern and western parts of the United States were able to take up most of American capital. American investments abroad amounted to only about 400 million sterling by 1914, and the United States was a debtor country. The Liberty Loan campaigns accustomed millions of Americans to purchase bonds for the first time. By 1923 American investments abroad equalled about 1600 million sterling and since then have vastly increased, and largely through the activities of the investment trusts. The trust is a kind of financial insurance device, the chief aim of which is to secure relatively high yields for the investor with a minimum of risk. To accomplish this end, it pools the resources of numerous individuals, and puts the management of the whole in the hands of a group of experts. This is particularly needed, it is felt, in foreign investments. On the other hand, the vast surplus of capital in the United States will eventually, it is thought, reduce the return which may be obtained for it in domestic investment, and cause a considerable share to go abroad. This is the experience of recent years. Although risks in foreign investment are in many cases great, these can be modified if an agency, such as the investment trust, under good management, is the go-between. American investors are warned, however, that the greatest caution must be exercised in investigating the financial reliability of investment trusts recently formed. Various members of Congress have also intimated their intention of passing new regulatory laws in connection with them.' Tn view of their rapid growth the law has not kept pace with them, it is believed, and new legislation is required.