25th October, 1928


(Due to arrive Canberra 25.11.28)

My dear P.M.,

I don't know how familiar you are with financial institutions in this country. This is by way of preface to saying something about the large and important class of companies called Investment Trusts.

This is not entirely apropos of nothing, as these companies in the past have been responsible in a quiet way for a good part of the financing of development in the United States and South America and other then young countries-and presumably will maintain this role in countries which are young today.

An Investment Trust proper is a limited liability company with a capital usually of from �250,000 to several millions, divided in about proportions of 3:2 between (a) fixed interest bearing non- participating preference shares or debentures, and (b) ordinary shares. Its capital is invested by men of experience and proved financial judgment in all classes of activities in many countries.

The risk is spread on a predetermined and usually roughly fixed basis as between various industries, various countries and various classes of security. The Directors have full powers to change investments and to participate in underwriting. Of the hundred or so of such companies now existing, the majority do not publish a list of their holdings, so that the public has only the Company's past record and the reputation of the individuals controlling it to rely on.

This class of company started in some numbers and strength between 1880 and 1890, and emanated in the first place from the offices of Scotch solicitors and business men who had the necessary experience, through the handling of the affairs of large estates, and who saw the advantages offered by large scale collective investment at home and abroad.

The cheap, long-dated, non-participating preference capital that these companies availed themselves of at the end of the last century has served the ordinary (equity) shareholders in good stead ever since. With very few exceptions these companies have had a most remarkable record of success, and the dividends on their ordinary shares have shown a constant increase from the start until they now pay anything from 10% to 40% on their ordinary capital with the accompanying resultant increase in market value.

Their preference shares or debentures, whilst not participating in the increase of equity, represent as gilt-edged a security as exists, as regards interest, although their market value has depreciated to bring their yield up to about the current 5%. The ordinary shares of the well established companies can only be bought on a basis of a yield of about 4%-and even on this low yield basis are hard to get.

London soon followed the example of Edinburgh and Aberdeen, and the London companies now, of course, far outnumber the Scotch. The combined nominal capital of the 150 or so Investment Trusts that now exist is from �100 to �200 million, and they therefore represent a formidable factor in the export of capital from this country.

The Investment Trust proper merges into finance or holding companies, the members of whose boards have some control over the affairs of the activities which they finance by seats on their directorates. But the public distinguishes fairly easily between the two.

There has been a recrudescence of activity in these last five years in the formation of Investment Trusts, but it remains to be seen whether the postwar companies will do as well as the old established companies. They have not, for one thing, got the advantage to the ordinary shareholders of the cheap preference or debenture capital that was available to the pre-war companies.

Certain individuals by long association with the business of investment have gathered great skill and experience and their names on the Boards of this type of company-combined with the record of success of their companies-have been sufficient, even in these post-war promotions, to ensure successful flotations.

Since the War America has begun to form Investment Trusts but their lack of experience in world affairs has, I am told, made itself very apparent. Canada has started with one or two and one is in course of formation in Australia at the hands of J.B. Were &


When I began to look into the question of Investment Trusts, I got rather an uneasy feeling owing to the fact that they do not, in general, publish their lists of holdings (or, in their technical term, 'their portfolio')-one never likes giving a blank cheque to someone else however upright and experienced. But I think now that they are, on balance, justified in their reticence. Even if they do publish, the majority of their holdings are foreign and unknown to the ordinary person. Publishing gives away their knowledge and may embarrass them in their sales and purchases which are frequently on a large scale and have to be carefully executed.

I am told by the people who are in close touch with some of the groups that they have in general divested themselves of American holdings in the last twelve months and that there has been a general tendency to go in for ordinary industrials on a larger scale than previously.

I have no idea what proportion of their capital is invested in Australia, but I can realise the benefit to Australian development of confidence in our future on the part of Investment Trust Company directors and managers. I believe that it is part of the policy of J. B. Were to interest these people and, although they have not told me so, I suspect that they are in touch with a good number of them.

I am, Yours sincerely, R.G. CASEY