John Bogle on Investing: The First 50 Years

ChapterIII

AS A SOURCE OF EQUITY CAPITAL

THE FUNCTIONS that the investment company has fulfilled for the individual investor and small institution has been indicated. However, there are additional functions which the companies should fulfill, since, as well as providing the investors with a safe and profitable investment, it is possible for mutual funds to put the capital thus gained to economic use. By and large, however, such has not been the case. One clear and present use for some of the investment company capital, the author submits, is in the field of venture capital. This need was clearly stated in the SEC report to Congress in 1942:

It is manifest that if investment companies persist in engaging only in the activity merely of buying and selling outstanding seasoned securities, these organizations at most will perform only a most limited function and will not play the vital and important role that may be possible by virtue of their control of such large pools of funds. The traditional policy of many such companies of investing substantially all of their funds in market leaders, although performing some functions for investors desiring to invest in common stocks, does not realize the real contribution which these organizations can make to the national economy. With the need for capital for industry, particularly small industries and new ventures, and with the difficulties of these industries in obtaining the capital required for their development of expansion, the failure ...