Henry Brown; Sire Of Money Market Fund Investment
Friday, August 15, 2008
Henry B.R. "Harry" Brown, 82, a New York investment banker credited with helping launch the money market fund industry, which revolutionized how millions of people save and invest money, has died.
Mr. Brown, a Leesburg resident, died Aug. 11 at Inova Loudoun Hospital of an abdominal aneurysm.
Money market funds are structured like other mutual funds, allowing thousands of investors to pool their money and buy shares of a diversified portfolio. Mr. Brown's Reserve Fund, which won Securities and Exchange Commission approval in late 1972, was the first money market fund in the United States.
The money market fund arrived at a propitious moment. During the next decade, inflation would roar upward. Meanwhile, a Depression-era law had federally capped at 5 to 5.25 percent the traditional way of parking money for the smaller saver, through bank and savings-and-loan passbook accounts. The difference meant those savers lost purchasing power.
Exempt from the federal cap and offering much larger returns, but far out of reach for most people, were investment instruments that required enormous amounts of money, including Treasury bills and jumbo certificates of deposit.
With the Reserve Fund, Mr. Brown and a younger colleague, Bruce Bent, challenged what they considered an unfair juxtaposition in rates of return offered to small and large savers.
The fee to open an account with the Reserve Fund was $1,000 and allowed smaller investors to invest in such short-term instruments as Treasury bills, certificates of deposit and commercial paper for the first time. Aided by a flattering article in the New York Times, Mr. Brown and Bent attracted $500 million in investors' funds by the next year.
Money market funds proved an easy point of entry into the investment world. Many of those who began to dabble in money markets later put their earnings into the stock and bond markets.
"Money market funds were clearly the most important product innovation in the history of the mutual fund industry," Matthew P. Fink writes in his forthcoming history of the mutual fund industry, "The Rise of Mutual Funds: An Insider's View."
Fink, a former president of the Investment Company Institute, an association of the U.S. mutual fund industry, added in an interview that the popularity of money market funds forced the government to eliminate the restriction on how much interest banks and S&Ls could pay to holders of savings accounts.
Within weeks, the Reserve Fund had steep competition. Now a $3.4 trillion industry, money market funds are offered by banks, brokerage houses and conventional mutual fund groups.
The Reserve Fund, which Mr. Brown left as chairman in 1999, manages $130 billion of investments -- sizable but dwarfed by such giants as Fidelity and Vanguard.