Financial Resources and Resourcefulness WILLIAM W.WOLBACH BOSTON W DEUSIT &.nnrSr CU.,BOSTON. W S .
a substantial orewuderanac of . . r the institutional assets which we have been dkcussing are invested in bonds, mortgagea, and comparable credit obligatiana owing to the policy restrictions neccsS W in ~ this type of busincls. Savings banka are even more confined in their choice of investments. On the other hand, the investment trusts as s group invest primarily in common stocks; firc and caeualty insurance companies are substantial holders of stocks, and in all probability at lewt 50% of the investment holdings of trust departments, private trustees, investment counsel firms, and individuals are represented hy common stocks. It iS therefore a reasonable ostimatc that approximstely $7.5 billion are invosted in common stoekn.
Investment -ouxea held or controlled in New England u1 -timatad at W billion and appear to b increasing et the rate of &ut $1.5 billion a n n d l y . Sulmtantid .mount. (u1available for “ a n t u n capital” in new enterprises. Th.-enw and ability of New England finanda and i n d m e n t managem in making profitable and &I employment of thfun& M held to b outstanding. It i.concluded that the ana is entitled to the higM ranbing em a soume of investment capital.
T
HE subjrct of finucial resources is II general one. and if would be eaay to get involved in aspects of thc Kew England m n o m y which would be of little or no signifiranre to cheniiita and chemical engineerr. How New England rates as a wurrc of investment capital is thc phase of New Enuland’a finanrial m u m discwsed hrre.
QUALITY Of FINANCIAL MANAGEMENT
INVEmMmm ASSETS E s h h rnnwrning New England’s invmtnwnt mdcld lrrrvc been made bcfore. Over thrm years SUO, thc Federal Kes~rve BankofBoetonrdmatedthat wof 194(irhcholdingrroftb~majur inaiitutional invwwm in New England total4 over M . 5 l~illion. Fiand estimatee now indicate that by the end of I Y 5 0 thesc institutional holdings had i n r r r w d M W1 billion, which for purpoees of classification v u be broken down 88 followa: Billioo
nvllara
Life iluunoee cons Fire. -e. oaaua?:,%d &dapauu Inuenlrntmenl 1mu
mrarcllaneous imurule.
R u a t deWRrncoU state and xm1io~u.Ibroka Uoiveraity snd solien endoamcot fun&
I2 a
2 6 8 2 I .3 6.0
0.0 31.2
The foregoingfigurea do nut include commercial bank dpporita. These have been intentioually omitted on the bash that wf are primarily concerned with funds available for long-term inventm a t , whereas commercial banks cuatomuily extend credit unly on a aeasonal or relatively short-term bmis. Cooperative banks and federal savinga and loan ssmiations have also been omitted, because their invwtments w e c o n h e d almost entirely to homr mortpapes. There .we no f i w s available for assets held by such noninstitutional private groups 88 private trustees (who are prominent in New England), accounts managed by investment counsel h, or personal holdings of securities and cash. all of which muat be large. However, making highly conservative allowances for these groups and for the indicated growth during 1951 in the major institutional categories, it would secm reasonable to estimate that as of the present time financial assets held or controlled in New England total S 4 billion. Furthermore, the indications are that these murces are increasing a t a rate of about $1.5 billion annually. While on the subject of measuring financial resources, i t would be well to give particular consideration to the amount of money available for common Btock or “equity riak” investments. Bec a w of the relative importance of the life insurance companies,
Up to this point, we have heen canaerned primarily with the quantitative measurement of New England’s h n c i s l mources. Of equal or greater importance is the evaluation of New England’s financial capacity from a qualitative standpoint. The ownel. ship of substantial capital in itself is of but minor signiiicancc unless, with it, there are the desire and ability to put thin oupital to useful and prafitahle employment. Fortunately, N e e England financial management in general, and investment management in particular, are outstanding. All too frequently, New England husineae ia considered in term8 of such situations as the textile indwtry, which have unquestionably passed their peak in this section of the country. Too little emphasis ia given to the fields in whioh New England is showing strong growth and acknowledged leademhip. An outstanding example is insursnoc. Here, New England companies account. for about 20% of all the life h u r a n c e in the country, and 25% of the combined fire and casualty business. The leadership of New England companies is acknowledged in thesc growing fields which have an important influence in the economic life, not only of the region, hut the country as a whole. Furthermore, the insurance business by its very nature involves the handling and investment of very large sums of money. New England companies have heen traditionally well managed in this respect, and its life insurance companies have been pioneers in msking use of common stocks. The rapidly growing inveatment truat business, which in recent years has rightfully assumed w important position in savings and investment program, originated in Boeton. Today, Bostonmanaged funds still dominate the field, accounting for c l m to one third of the entire business. I n the management of tmt funds and estates, New England hae long heen recognized as a leader. The ~ ~ a l l e“prudent d man” rule, which originated in Massachusetts, haa become the model by which other states have shaped their laws and regulations governing the investment of trust funds. Today, the tmt companies in Msssachusetta hold a higher proportion of common stocks in their accounts than is the cane in most other sections. The investment counseling field ia another example of New England leadership. The first investment counsel h r m m r e started in Boston after World War I with the objective of applying the latest theories, scientific approach, and specialized study to
m I1
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INDUSTRIAL A N D E N G I N E E R I N G C H E M I S T R Y
all phases of investing. While the investment counseling idea has grown and spread into all important financial centers, the major Boston firms continue to be leaders in both size and reputation, and guide the investing of huge sums not only in New England but throughout the whole country. VENTURE CAPITAL Another extremely important example of New England financial leadershjp is represented by organizations formed t o supply “venture capital” and management counsel to new enterprises which would otherwise find i t difficult to obtain competent and adequate backing. One of these is the American Research and Development Corp., which was founded in 1946 with objectives which include: T o provide a financial vehicle and an organization through which individual and institutional investors may participate in venture capital. T o offer capital and managerial assistance, not only for individuals with ideas, products, and processes, but also for companies with growth possibilities. To render assistance, . . t o corporations in their research and development programs, particularly in their search for new products. American Research and Development, during the short period of its existence, has invested in 27 separate enterprises covering such fields as applied physics, chemistry, food products, power combustion systems, and various forms of specialized equipment. I n addition, it has given assistance and advice to scores of other concerns and individuals. The board and management of American Research and Development include many prominent, scientific, business, legal, and financial names which are indicative of the services that i t can provide for those who are struggling to put over a promising new idea. At least one other similar concern is active in Boston, and the indications are that the potential supply of venture capital in S e w England greatly exceeds the opportunities for useful and profitable investment. Before leaving the subject of venture capital, it is worth pointing out that less than two years ago, farsighted industrialists and bankers in Maine initiated the Development Credit Corp. of Maine as a means of providing risk capital and credit to new enterprises and small businesses with sound plans for expansion in that state. A comparable organization now exists in New Hampshire, and legislation with approximately similar objectives is now pending in Massachusetts and Rhode Island.
OUTLOOK FOR T H E FUTURE Thile New England’s past and present prominence in finance and investment management seems clearly defined, the question can properly be raised as to whether this leadership will continue in the future. There is every indication that it will, because S e w England has certain inherent advantages in these fields that other sections cannot provide. The advantages of Detroit for automobiles, Chicago for meat packing, Texas for oil, and Southern California for aircraft production are well known. Similarly, Boston and certain other S e w England cities have the ideal environment and facilities for leadership in finance and investments. As one of the oldest sections of the country, New England has
Vol. 44, No. 11
the experience which results from the management of property from generation t o generation through prosperity and depression, war and peace, panic and inflation. Along with this experience, there is the progressive leadership in methods and techniques which began with the investment counsel firms and is now being carried forward by the “newest profession,” investment analysis. I n Boston alone the Boston Security A4nalyst Society has 270 members. Meetings are held weekly to learn directly from management the story of its business, and to hear from prominent economists and industry specialists. Its analysts travel extensively to talk with managements, observe industry in operation, and study conditions generally in the field. The Analysts Society also exerts an important influence in providing ‘[higher education” for junior analysts and others interested in an investment career. Of great importance t o the professional investor and security analyst in New England is the ready availability of reliable scientific and technical information. The outstanding position of Boston as a medical center provides a basis for checking new drug developments; Massachusetts Institute of Technology and Harvard are the source of much general information in many fields; and specific information on a wide variety of scientific and technical matters is available from one of the important organizations which comprise “Research Row” along the banks of the Charles. Faoilities like these make it possible for the wellinformed security analyst to quote present and prospective productive capacities, production costs, and potential uses for some new chemical which might not even be known to investment circles generally. Finally, to all in the financial centers of New England, there is the tremendous stimulus which comes from the contacts and competition of working with and among so many others who are engaged in comparable activities.
CONCLUSIONS T o summarize this discussion, the following conclusions appear t o be justified:
The investment resources controlled by New England total over $34 billion and are increasing annually a t a rate of about $1.5 billion. New England occupies a foremost position as a potential source of venture capital for new enterprises. New England’s financial managers are leaders in developing the knowledge and techniques of successful investing. They have the desire, the experience, and the ability to employ their funds usefully and profitably. Unquestionably ?Jew England is entitled to the highest ranking as a source of investment capital for chemical processing and other progressive industries. The New England capital market is worth investigation and cultivation. Whether a company needs or may need additional funds for expansion, or merely wishes to broaden its stockholder representation, management should come to Xew England and talk with major institutional investors and security analyst groups there. It should invite them to see plants and meet personnel. These groups will be found genuinely interested and able to understand what the company is trying to do, and ready to back up that judgment with -whatever type of financial assistance may be required. RECEIVED f o r reviem March 31, 1931.
ACCEPTED
August 27, 1961.
