Evening star., 1950-06-18

Under the provisions OF an aci
recently passed by the New York
State Legislature. trustees in thai
State may, beginning July l next
invest trust funds in common
stocks up to IS per cent of the
total of any restricted trust fund:
for which they are trustees.
The passage Of this act, signed
by Gov. Dewey April S, marks the
end of a long struggle between
trustees, on the one hand, and
State authorities, on the other, fol
a larger area of discretionary
power in chosing investments fol
trust funds. In fact, this struggle
started early in the New Deal era
when certain policies began. not
only to have the effect of reducing
income on trust funds, but also OF
endangering the principal.
At about this time, early in 1885,
a trustee in New York, petitioning
the court for permission to deviate
from that States legal list, said
that the imitation of the currency,
which at that time was more or
less in progress, was having the
effect Of reducing the value of the
trust funds while, at the same
time. the cheap-money policy of
the administration was causing a
reduction in the income on these
funds. In his petition, this trus-
tee asked the court to sanction
the investment of part of the trust
funds In common stock as a hedge
against the effects Of these
policies.
In deciding this case, the court
said that although there might
be reasonable grounds for "the
apprehension of trustees and
others over the future of the cur
rency. relief would have to be
got. If at all, from the lawmakers,
not from the judges"
Hoover's Views
Now, after IS years, the law
makers have passed this act and
thus granted the relief this trus-
tee prayed for in 1885.
At about the same time. q SIM
liar petition was fled in a Cali
fornia Superior Court by the trus-
tees Of Stanford University, OF
which ex-President Hoover was
one. asking the courts approval
OF a proposal to invest, at the
discretion of the trustees, the
endowment trust funds of the
university in common stocks, de-
bentures and other equities not
secured by a mortgage on tangible
property.
Testifying in this case. ex-
President Hoover told the court
that hitherto the trustees had moi
invested the university's trust
funds in common stocks, real
estate and other such equities
because of the greater risk in.
Volved in such investments. But
new factors. such as the devalua.
tion of the dollar, the widespread
bank credit imitation and the pos
sible menace of currency infla-
tion, have been introduced into
the picture to change consider
ably the general investment en-
vironment insofar as the safety
of the principal of the trust fund
as well as income thereupon was
concerned.
Experience on similar occasions
shows" he said, that common
stocks and real estate and other
equities ultimately rise in values
somewhat in proportion to the in
crease of devaluation or infla-
ton" Therefore, while common
stocks, real estate and other equi-
ties are subject to risk, yet this
may be the lesser risk than bonds
and mortgages"
Unlike the New York court in
the case which came before it
the California court approved the
proposal of Stanford University's
trustees. However, New York had
. long developing and large body
of law governing the investment
of trust funds, whereas California
at that time had developed vir.
tually no such law. Moreover
the total Of funds held in trust
in the State of New York was
relatively large. while in Califor-
mia this total was quite small.
Nevertheless, Is years is q lone
time to wait for relief.