Abstract

"The mass “exodus” of British capital from the USA. The historical case of the British Investment Trusts in the aftermath of WWI"

Antonis Kyparissis, University of Northampton (a.kyparissis@mmu.ac.uk)

In this presentation, I examine the institutional investors’ asset management policies in the UK in the wake of WWI, focusing on the Investment Trust Companies’ (ITCs hereafter) investment strategies. The main question I will try to answer is: how did WWI changes affect the asset management strategies of the ITCs? Mainly, I study the significant changes of the geographical allocation in the ITCs portfolios, focusing on the USA holdings.
Investment Trusts Companies are defined as financial institutions specialized in investing the savings of their clients into marketable securities. The financial conditions of the pre-WWI (first globalization) era could help them flourish. However, these collapsed at the outbreak of WWI. ITCs should, and did, react to the changes by shielding their investments and protecting their investors.
To answer my question, I constructed an appropriate data base using the portfolios of the British ITCs. A data set of 30 companies and 40,000 observations appears through this process. The ITCs continued preserving their character as dynamic institutions, with a highly diversified portfolio.
Before the war, a wide sectoral and geographical spread of ITCs’ investments has been presented. In the case of the USA, prior to WWI, the ITCs did not hesitate to invest heavily in Railways’ debentures, other utilities and industrial sector holdings which were being offered in abundance.
However, the outcome of WWI brought this dynamic evolution to an end. The reasons for the following steep fall were based: a) on the British state interventions in the foreign currencies financial market; and b) the devaluation of the British currency in the years after the war until the new peg in 1925. British ITCs management strategies followed an active approach choosing the right time to sell their holdings making significant profits, preferring alternative markets such as the British and the European ones.