Evening star., 1950-06-18
Investment Authority for New York Trustees
Is Expected to Influence Other Investors
Changes in Investment Powers Of insurance Companies sovnes
Banks and Others Are Likely Follow Sotes Permission
To Invest One Third Of Too of ANY Restricted Trust Fund

vestment in common stocks; (2)
Is there a sufficiency of such
equity securities. such as common
stocks and the like. to supply the
demand of trustees of these funds
and CD what ultimately will be
the probable economic and social
effect of the ownership of the
voting stock of large corporations
operating in key industries passing
to trustees. especially to the trus-
tees of pension trust funds.
Indeed. Thomas B. McCabe
chairman Of the board of the Fed
eral Reserve System, in a state
ment to the Senate Banking Com
mittee last summer. advocated lib
eralizing laws so as to permit life
insurance companies to invest ir
common stocks. He contendeo
that such policy would not only
produce a higher yield to the in
vestor but also release capital fol-
sound enterprise. He deplored the
lack of risk" capital and the in
creasing "zest" for security.
Enough Stocks Available
AS to the first of these ques-
tionS, reliable estimates place the
total Of all restricted and unre-
stricted trust funds available for
investment in the State of New
York at approximately $13.5 bill
lion. OF this amount, approxi-
mately from SO billion to $4
billion are restricted while the
remainder is unrestricted. Hence,
come July next about 81 billion
will be released in that State as
available for investment in COM
mon stock. In addition, while no
reliable estimates are available. it
might be calculated that the re-
manning Al States and the District
OF Columbia have in trust funds
either restricted or unrestricted
an amount equal to the total
OF New York, namely $13.5
billion. Thus. it may be estimated
that the total Of restricted and
unrestricted trust funds in the
country, available for investment,
is around $27 billion. And when
approximately SO billion of invest
ment trust funds, together with
approximately 50 billion of pen
sion trust funds. are added, this
total is around $32 billion.
But this is not the whole story
The Investment Trusts, which tho
public have accepted as a form OF
nvestm en- t, are accumulatina
funds at an. astonishingly rapid
rate, while Pension Trust Funds
currently accumulating at the rate
OF approximately SIS billion an.
nually, soon will be piling up CAPT.
tai for investment at a rate oi
over 50 billion annually. More
over, this rate may be expected
further to increase.
Is there a suff1ciency of equities
such as common stocks, to supply
the probable demand of trustees
which may be expected to result
from this development?
OF course, all common stocks
are not eligible investments for
trust funds. The Prudent Man
Rule eliminates vast amounts
Seeking the answer to this oues-
ton, the Trust Study Committee
whose report was the basis of the
New York law. stated that the
results Of a survey which it made
revealed that there may be an.
proximately $31 billion of pre-
ferred and common stock EQUITIES
available for investment of trust
funds under the Prudent Man
Rule. This amount, added to 8
total OF around SIS billion pal
value legal corporate bonds car.
ried on the New York State Lega,
List as of July l, 1949, makes
available an estimated $46 billior
OF corporate securities, both mort.
gagged bonds and equity securities
available for investment of trust
funds.
However, should investmen,
powers Of insurance companies
and savings banks be at sometime
in the future changed to permit
investments in equity securities
something which the Passage O!
this act by the New York Legisla.
ture probably foreshadows, thi.
total will be greatly augmented
Tor insurance companies alone ar,
today accumulating capital In the
form Of premiums at the rate OF
$6.S billion annually.
Capital Apparatus
AS to the effect of this develop.
ment on the Nations economi,
and social life, we must recognize
that we appear to be in the process.
OF building a huge Capital Forma.
ton Apparatus possessed with
power to engage in large-scalt
equity financing operation. Fol
the most part, this Apparatu.
seems to have as one of its MAR
objectives the gathering and dis.
tribution of funds-pension fund.
for the purpose of attaining 8
Socialistic objective. To what ex.
tent this Capital Formation Ap.