The theme of investment management in Boston in David Grayson Allen's book is one that has not yet been covered. As he states in the introduction, the last time that a book on the financial history of Boston was published was in 1916—The Financial History of Boston by Charles Phillips Huse—and, even then, it was about the municipal finances of Boston rather than the growth of the powerful investment management industry that even at that time played an important role in the city (p. 1). This book sets out to rectify this omission and does a very good job. Using oral histories as well as printed and manuscript sources from a range of libraries and corporate archives, Allen has written a compelling history of investment management in Boston, from the settling of the city in the seventeenth century to today.

The book is divided into three parts, in more-or-less chronological order: from settlement to industrialization; from the nineteenth through the mid-twentieth century; and from the postwar years to the present. In each section, different forms of investment management dominate. The early years saw the setting up of endowments for churches, schools, and colleges—including Yale, Harvard, and Dartmouth—as well as philanthropic and mutual-benefit societies. Initially in the form of land and natural resources, assets were, by the early nineteenth century, increasingly in the form of stocks, bonds, and direct investment in financial institutions and industrial enterprises. Such assets required a different type of investment management.

By the Civil War, Boston wealth derived from a number of sources: specialized agriculture, the so-called China trade, local textile mills, and opportunities from the American West, notably railroads and mining. Broking firms on the Boston Stock Exchange (founded in 1834), such as Kidder Peabody and Paine Webber, acted as investment banks, underwriting and distributing stock and bond issues in, for example, General Electric and the Bell Telephone Company, both headquartered in Boston. The population of Boston doubled from the mid-1820s to the mid-1840s, but wealth quadrupled. One local publication listed four hundred men each worth over one hundred thousand dollars. Much of this money was managed in the form of family trusts by “Boston trustees” who benefited from Judge Samuel Putnam's ruling on Harvard v. Amory, heard in the Massachusetts Supreme Court in 1830, which gave trustees leeway in choosing investment policy—needing merely to observe how men of prudence, discretion, and intelligence managed their own affairs—and also protected trustees from being held responsible for losses, provided they had conducted themselves honestly, discreetly, and carefully. Helped by a further ruling on spendthrift trusts, Boston trustees had more discretion than did trustees in other states, such as New York, who were required to choose securities from predetermined lists or risk a lawsuit. So Boston trustees survived well into the 1950s, when many were acquired by commercial banks. Others responded by going national, increasing their investment expertise, and offering clients alternative assets in addition to conventional stocks and bonds.

Boston was also home to a number of new investment-related ideas. For example, with respect to investment information, Clarence W. Barron founded the Boston News Bureau, started a newspaper of the same name, acquired the Dow Jones company in 1902, and was famous for his scrutiny of accounting records—publishing, for example, an exposé of a Boston financial swindler named Charles Ponzi. Roger W. Babson founded his business advisory company in 1904; it published an investment letter called Babson's Reports and used statistical analysis, including the “Babson chart” of economic indicators, to forecast the crash of 1929. Theodore Scudder, a bond salesman, frustrated by the lack of general investment advice available to the increasing numbers of investors post–World War I, started Scudder, Stevens & Clark in 1919. His innovative approach to investment counsel, which included suggesting a diversified portfolio—initially 40 percent bonds, 40 percent common stocks, and 20 percent liquid assets—began to take off in the mid-1920s. The concept of investment counsel spread quickly—and survived the crash of 1929—by offering investors advice in an increasingly complex investment world. The Investment Counsel Association of America was created in 1937. A further impetus to the industry occurred after pension fund legislation in 1974, the Employee Retirement Income Security Act of 1974, when investment counsel came to be offered to corporate pension schemes as well as to individuals.

Perhaps the most famous innovation to emerge from Boston was the “Boston Type” investment trust: an open-end rather than closed-end mutual fund, the latter already familiar to Bostonian investors through British trusts investing in American real estate. The Massachusetts Investors Trust, established in 1924, was swiftly followed by the State Street Investment Corporation and by Incorporated Investors; all three invested in a portfolio of common stocks. These mutual funds used the organizational structure of a “business trust,” recognized by the Massachusetts courts in 1890. This structure was between that of a corporation and that of a partnership, had no maximum capitalization, and allowed investors to sell their holdings back to the trust for net asset value plus a fee. The book details how these open-end funds outperformed closed-end funds during the 1929 crash and how they were favored by the Investment Company Act of 1940 over closed-end funds, leading to dramatic growth post–World War II. Within this sector, Boston funds accounted for 56 percent of assets under management by 1945. Helped by aggressive marketing, the demand for growth equity funds in the boom years of the 1950s and 1960s, the rise of money market funds from the 1970s, the creation of tax-exempt funds and index funds in the 1980s and 1990s, and perhaps most importantly of all, mutual funds being allowed as part of retirement plans from 1979 onwards, the Boston mutual funds—including such well-known names as Fidelity—have continued to thrive, despite increased competition from funds based in New York and elsewhere.

Further innovations included venture capital, private equity and hedge funds, alternative asset classes of interest to pension funds, and endowment funds, particularly Harvard and Yale. And Boston investment management firms have taken advantage of the wealth created in the investment management sphere to manage the money of the individuals concerned, going full circle back to the Boston trustees.

This book is not just a history of investment management in Boston; it is a history of investment management in the United States and beyond. Allen makes another contribution, though. As well as describing the history of the Boston investment management industry—the main object of the book—Allen also documents the switch from bonds to equities and the development of investment advice, investment statistics, mutual funds, and alternative assets, each triggered by changes in regulation, marketing, tax, or market movements, thus tracing the history not just of investment firms but also of investment styles over time.