investor. They may not apply to, or need to, be regulated. Where this is the case there
is often no easy way for the statistical agencies or regulators to capture them in their
estimates. Further (and especially in the case of unregulated schemes), whilst the
process of adding newly established funds to the statistics may be relatively straight-
forward, and is helped by the fact that sponsors may be willing to volunteer this infor-
mation so as to attract investors, the process of removing closed funds can be a little
more hit-and-miss. If a fund is unregulated and there is no legal reason for its removal
to be flagged to the regulator, and if its managers are not inclined to provide perform-
ance data to any of the agencies measuring such data, it can linger on in the headcount
statistics for some time after it has, in fact, ceased trading.
The different methods of defining the funds universe have also distorted the per-
ceived success of different jurisdictions in attracting new funds business – some choos-
ing to cite the headline numbers in terms of the widest possible definition, so as to
improve perceptions of their success. Others are more rigid in their interpretations.
When looking at cross-jurisdictional comparisons, therefore, it is important to delve
deep enough to ensure you are comparing like with like!
Nonetheless, it is possible to emass meaningful statistics. At the end of the year, the
size of the worldwide mutual fund market (that is, open ended schemes only) was esti-
mated at just under $14 000 000 000 000 – some 23% upon the previous year. This
estimate excludes funds-of-funds.
1.5 Origins: the first collective investment vehicles and
the emergence of a funds industry
The fund industry is often said to have begun in the United Kingdom in the mid-
1800s, when the Foreign and Colonial Government Trust was formed. However its
roots in fact go back much further. The concept of collectivization of ‘investment’
interests can be traced as far back as 200 BC, by way of contracts which we would
probably describe nowadays as life annuities. A European variation on this theme, the
‘tontine’, became a relatively common means of raising finance from the public in the
Middle Ages; many of the principles then developed still inform today’s fund industry,
although it was not until the 18th century that true funds began to emerge.
Two developments in the capital markets also assisted in the development of a fund
industry: these were:
The development in the 18th century of securitization, which allowed private loan
instruments (typically plantation loans to the West Indies) to be transformed into
publicly traded securities;
Stock substitution – that is, the repackaging of one security in the form of another
with different characteristics which were more palatable to a particular investor
market. The end product was essentially an early form of depository receipt.
Both of these developments led to new markets in instruments which had potential
investor appeal – but which, in order to attract private capital from a risk-averse
investor base, needed something more. This ‘something’ was provided in 1774, in
Holland, where in that year the first ‘Negotiatie’ of its type was formed by a local
merchant named van Ketwich.
The concept of collective investment schemes 9

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