Unlike closed-end and other types of investment companies which expanded so spectacularly both in numbers and assets during the later 1920s, mutual funds grew at a much slower pace. At the end of 1929 only 19 of the 770 investment companies then in existence were mutual funds, and their combined assets ($140 million) represented only a trifling share of the assets of the entire group (nearly $7.2 billion). Mutual funds not only survived the stock market crash better than most other types of investment companies, they also recovered from the depression more rapidly, their assets climbing from a low of $64.3 million in 1931 to $75 million in 1932, before soaring to $506 million at the end of 1936. Their greatest growth occurred with the onset of wartime prosperity, and they continued to expand at an accelerating pace through the postwar boom years. Between 1950 and 1960 the number of investment companies registered with the Securities and Exchange Commission, some two-thirds of which were mutual funds, increased from 366 to 570, and their combined assets grew fivefold, from $4.7 billion to $23.5 billion. By 1970 both their number and assets had more than doubled from the 1960 peak, to 1,328 companies with assets of $56.3 billion.
The dramatic growth of mutual funds, like the investment trust boom of the 1920s, was fed by thousands of investors, many of them as gullible and greedy as the speculators of the 1920s. The hope of quick riches swelled the number of mutual fund shareholders to some 3 million by 1965, with many of the more venturesome among them investing in the so-called performance funds, the companies that posted the quickest and largest gains in assets. Investment and brokerage houses earned commissions merchandising mutual fund shares to investors, and they collected still larger ones buying and selling securities for the funds themselves. In 1960 these companies bought and sold almost $4.8 billion of common stock, or nearly 49.2 percent of the total stock transactions of the four leading institutional investors; in 1965 their common stock purchases and sales reached nearly $11.7 billion, almost 50.5 percent of the total volume of the top four group of institutions; and the comparable figures for 1969, the peak year for the decade, were nearly $42 billion, representing some 52.4 percent of such trades. Some funds, intent upon realizing large and quick profits, traded so often and in such quantities that the term "go-go" was used to refer to their stock market operations.
Kidder, Peabody was not among the "go-go" promoters and sellers of mutual fund shares. Gordon's recollections of the old firm's unhappy experience with its own investment trusts, the Kidder Participations, and his own judgment of what he considered proper and correct conduct dictated a more cautious approach to this increasingly popular investment medium. Amyas Ames, who served as Kidder, Peabody's sales manager at the time the mutual fund department was organized, explained the firm's basic policy and purpose. The mutual fund department, he said in a memorandum to the partners, "will engage in the promotion, through advertising and mail follow up, of a group of 'open-end' investment company shares," but unlike some firms, which touted certain specific funds, Kidder, Peabody's entire program, Ames said, was to be "keyed to talking about, writing about, selling, and advertising the Mutual Fund Industry-rather than any particular Fund or group of Funds." The thrust of the firm's mutual fund business, he concluded, was to make prospective clients aware of the many types of fund shares available-balanced portfolio, general stock, long-term growth-and to make customers conscious of Kidder, Peabody "as an impartial purveyor of the highest grade of investment company shares."
Several considerations determined the partners' decision to locate the mutual fund department at the firm's midtown Manhattan office. Business there had been lagging and it was hoped that the mutual fund department would improve the office's entire sales performance. New York City was one of the largest markets for mutual fund shares in the country, and Kidder, Peabody's office at 10 East 45 Street appeared ideally situated to attract the type of client interested in these securities.
At first the partners had planned to use the mutual fund department to train salespeople for eventual assignment to the firm's general stock department, but it soon became apparent that the marketing of investment company shares required a specialized and experienced staff. The original plan was dropped and the firm recruited young people with some experience selling mutual fund shares and, in time, it added other experts in advertising and merchandising this type of securities. To acquaint investors with the risks and opportunities of buying investment company shares, the mutual fund department arranged special lectures at its office, the first of which was given by a representative of Calvin Bullock, the oldest investment management firm in the country. In May 1952 Kidder, Peabody launched a thirteen-week series of fifteen-minute radio interview programs to advertise mutual fund investments. By then the firm was retailing the shares of some forty investment companies and had added mutual fund departments to its Boston, Philadelphia, and Chicago offices.
Besides its retail sales to individuals, Kidder, Peabody also developed institutional markets for these securities. The firm's institutional approach to mutual funds as an investment medium appealed to the managers and trustees of corporate and union retirement, pension, and profit-sharing plans. The financial officers of these pension trusts looked to Kidder, Peabody's research reports on the past performance and future projections of various investment companies, as well as for investment advice. Both of these services often led to Kidder, Peabody becoming the intermediary through which these benefit funds bought and sold their investment company shares, adding to the firm's commission business.
Current research on the investment company industry, together with a strong nationwide sales capacity, also made kidder, Peabody an attractive house to help plan and organize new funds and underwrite their offerings. In April 1952 the firm co-managed a syndicate of 101 houses that underwrote a 900,000 share offering of Canadian Fund, Inc., a new open-end investment company. Chartered in Maryland and managed by Calvin Bullock, the fund was designed to provide Americans with a medium of "diversified investments in Canada." This successful flotation, one of the first by a member firm of the New York Stock Exchange, led to other similar underwritings as well as to additional calls upon the firm's advisory services, including some from abroad. In 1967 Kidder, Peabody helped plan and organize the first wholly managed Italian investment company, the International Securities Fund. By then the firm was a major national distributor of mutual fund shares, one of the few top investment banking houses to have made itself a specialist in selling this class of securities. Between 1950 and 1970, the years of the mutual funds' most striking expansion, Kidder, Peabody's business in sponsoring and selling the shares of these companies accounted for between 8 percent and 10 percent of the firm's annual gross revenue.
During that same period Kidder, Peabody diversified its services still further, expanding some it had not developed extensively and adding others not previously provided. The firm's long experience in arranging mergers and acquisitions, which dated back to the end of the nineteenth century, was used to cultivate this rapidly expanding business. During the postwar years the trend toward consolidations and mergers and the growth of conglomerates expanded at an accelerated pace. Not since the 1920s, when some 6,800 major mergers and acquisitions were accomplished, had the rate of these consolidations grown so significantly. Between 1960 and 1969 the number of mergers and acquisitions among manufacturing and mining concerns with assets of $10 million or more alone totaled upwards of 12,500, more than times as many as had been negotiated in the previous decade. Kidder, Peabody assisted in many of these transactions, bringing possible new acquisitions to the attention of corporate clients interested in diversifying, analyzing and evaluating companies, and negotiating terms. Some of these transactions involved concerns with assets of hundreds of millions of dollars, such as occurred in August, 1968, when Kidder, Peabody negotiated the combination of Control Data Corporation and the Commercial Credit Company. The newly combined corporation's total assets exceeded $860 million. But most of the firm's merger-related services were for small and medium-sized companies valued between $3 million and $50 million.
Another growing area of business which Kidder, Peabody developed was providing, on a fee basis, financial advisory services to wealthy individuals, fiduciaries, and privately owned corporations. This business, like its work in planning and negotiating mergers, combinations, and acquisitions, grew out of Kidder, Peabody's nineteenth century experience when the firm had served the investment needs of Boston's wealthy elite families. In the post-World War II era the firm continued to advise individuals of inherited wealth and manage their investments, but it also sought new clients requiring professional management of their stock and bond portfolios, such as high salaried corporate executives, trust estates, and educational and charitable institutions. By the end of the 1960s the firm was providing continuous, specialized investment services to several hundred individual and institutional clients.
Kidder, Peabody's advisory services, particularly those for institutions, helped increase the firm's block trading business. Most of these operations were secondary distributions conducted off the floor of the exchanges. The number of secondary distributions soared after 1956, the first year these transactions involved more than 10 million shares valued in excess of $50 million shares valued at over $1.2 billion. Block distributions on the nation's exchanges arranged by member firms also the security markets, both the number and dollar value of secondaries more than tripled, from a low of 11.4 million shares worth $424.7 million in 1960 to a 1969 peak for the decade of 38.2 million shares valued at over $1.2 billion. Block distributions on the nation's exchanges arranged by member firms also increased substantially, exceeding a million shares for the first time in 1961 and reaching almost 3.5 million shares in 1967. The number and dollar value of these sales always remained considerably less than those arranged off the floor of the exchanges. Kidder, Peabody participated in both types of operations. The average annual value of its secondary distributions during the 1960s amounted to about $30.6 million. The greatest dollar volume for the decade, nearly $74.9 million, was reached in 1961; six years later the firm executed the single largest block distribution on the floor of the New York Stock Exchange, trading 1 million shares of Pacific Petroleum Inc.
