History

The history of investment trusts
Investment trusts (including many of the Scottish ones) have been involved in some of the most significant industrial trends and investment opportunities over the last 150 years. When Foreign & Colonial (F&C) launched its first investment trust in 1868 to a sceptical public, individual investors had little in the way of investment choice. Government bonds were safe but financially unrewarding while more interesting opportunities overseas were risky and inaccessible to all but the wealthiest. Early investment trusts such as F&C, Scottish American and Alliance, all still in existence today, offered investors the chance to invest in a relatively diverse overseas portfolio for the first time.
By the end of the 19th century, the managers of most investment trusts were regarded as pioneering but reputable and prudent investors. In the early 21st century, investment trust investors are as likely to play a role in developing markets as they were in the heady days of the late 19th century.

Key Dates

• 1868:
  The first investment trust, Foreign & Colonial (F&C) is launched in London to invest in foreign government bonds or fixed interest stocks.
• 1873:
  The Scottish American Investment Trust is created in Dundee to invest in American railroad bonds. In Edinburgh, a separate company – The Scottish American Investment Company Ltd (SAINTS) – is set up to invest in railroad mortgages and government, state and municipal stocks.
• 1888:
  Alliance Trust is formed as an investment trust in Dundee through the merger of the ‘William Mackenzie’companies.
• 1909:
  Straits Mortgage and Trust company (now Scottish Mortgage Investment Trust PLC)is founded in Edinburgh, mainly to offer mortgages on the rubber plantations set up to meet the boom in demand for rubber for car tyres.
• 1920:
  James Ivory’s British Assets Ltd acquires the share capital of Edinburgh American Land Mortgage Co. Ltd, resulting in one of the sector’s earliest takeover bids. Edinburgh American was renamed the Second British Assets Trust in 1925.
• 1920s:
  Investment trusts move away from purely fixed-interest portfolios into equities, partly to protect investors from the effects of inflation
• 1929:
  Wall Street Crash heralds the start of The Great Depression of the 1930s.
• 1941:
  Three leading investment trust figures, Walter Whigham of Robert Fleming, David McCorrack from The Alliance Trust, and Carlyle Gifford, one of the founders of Baillie Gifford & Co, organise the £525 million sale of dollar securities held by British financial institutions to raise vital dollars for the war effort. The Association of Investment Trusts raises £3 million from its members for warships.
• 1945 - 1950s:
  Nationalisation of the Bank of England, coal, gas and electrical industries, as well as many of the transport companies and the National Health Service. Equity markets develop as more investors move from fixed-interest to ordinary shares.
• 1970s:
  Investment trusts played a significant role in the formation of a number of North Sea exploration companies including the London and Scottish Marine Oil Company Ltd, now Eni LASMO Opsus.
• 1980s:
  Management of investment trusts increasingly outsourced to professional fund managers. Rising number of investment trust takeovers occur. Private investors buy more trusts through Personal Equity Plans (PEPs) and savings schemes introduced by some investment trust management groups.
• 1990s:
  The UK’s largest investment trust, Globe Investment Trust was taken over by British Coal Pension Funds. 3i Group plc, formerly ICFC (The Industrial and Commercial Financial Corporation) is listed as an investment trust.
• 2009:
  Over 430 investment trusts have £75 billion under management as at 30 June 2009 (Source: Association of Investment Companies).

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