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“Cult of Equity”: Actuaries and the Transformation of Pension Fund Investing, 1948–1960

Published online by Cambridge University Press:  15 June 2015

Yally Avrahampour
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Abstract

This article examines the mid-twentieth-century transformation of U.K. pension fund investment policy known as the “cult of equity.” It focuses on the influence exercised by the Association of Superannuation and Pension Funds over actuarial and corporate governance standards, through actuaries who were members of its council. This intervention led to increasingly permissive actuarial valuations that reduced contributions for sponsors of pension funds investing in equities. Increased demand for equities required pension funds to adopt a more permissive approach to corporate governance than insurance companies and investment trusts, and contributed to declining standards of corporate governance.

Type
Research Article
Information
Business History Review , Volume 89 , Issue 2 , Summer 2015 , pp. 281 - 304
Copyright
Copyright © The President and Fellows of Harvard College 2015 

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29 Minutes of the British Insurance Association Investment Protection Committee (hereafter, BIA IPC minutes), 12 Dec. 1949 and 9 Jan. 1950, CLC/B/017/MS29134A, ABI collection, LMA; AIT minutes, 26 Sept. 1949 and 20 Nov. 1950, CLC/B/018/MS38449, AIT collection, LMA.

30 AIT chairman, lecture, AIT annual general meeting, 18 Nov. 1957, CLC/B/018/MS38449/1, AIT collection, LMA.

31 Roberts, “Regulatory Responses”; Cheffins, Corporate Control; Gordon Hosking, comments in Report of the ASPF Annual General Meeting 6 August 1953 (London, 1953), 14–16, CLC/B/018/MS38490, AIT collection, LMA.

32 Hannah, Inventing Retirement, 19–21; L. A. Ellwood, “The National Association of Pension Funds: An Outline History,” Pensions World, Nov./Dec. 1972, 63–66.

33 Day and McKelvey, “Treatment of Assets”; Gilley, Dennis and Funnel, Dudley, “Valuation of Pension Fund Assets,” Journal of the Actuarial Students Society 15 (1958): 43–68Google Scholar; Puckridge, “Rate of Interest”; Heywood, Geoffrey and Lander, Max, “Pension Fund Valuations in Modern Conditions,” Journal of the Institute of Actuaries 87 (1961): 314–70CrossRefGoogle Scholar.

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36 On the refusal by the Association of Superannuation and Pension Funds to establish the committee, see the minutes of the Association of Superannuation and Pension Funds (hereafter, ASPF minutes), council meeting, 21 Jan. 1947, LMA/4494/A, NAPF collection, LMA; on the ASPF's unwillingness to provide investment protection, see ASPF minutes, 14 Oct. 1948, 15 May 1949, and 30 Jan. 1950, LMA/4494/A, NAPF collection, LMA; on the ASPF's unhelpful response to members' issues, see ASPF minutes, 13 May 1946, 21 Jan. 1947, 14 Oct. 1948, 15 May 1949, 14 Oct. 1949, and 30 Jan. 1950, LMA/4494/A, NAPF collection, LMA.

37 Reginald Edward Underwood, The Elements of Actuarial Science (London, 1922); ASPF minutes, 21 June 1947, and minutes of the ASPF annual general meeting, 23 June 1947, LMA/4494/A, NAPF collection, LMA.

38 George Ross Goobey, comment on Underwood, “Widows' and Orphans' Pension Schemes,” 17–18.

39 ASPF minutes, 29 June 1949, LMA/4494/A, NAPF collection, LMA.

40 Institute of Actuaries, The Institute of Actuaries Yearbook (London, 1945)Google Scholar; Institute of Actuaries, The Institute of Actuaries Yearbook (London, 1946)Google Scholar.

41 Hosking and Lane, Superannuation Schemes.

42 ASPF minutes, 14 Oct. 1949, 30 Jan. 1950, and 22 May 1950, LMA/4494/A, NAPF collection, LMA.

43 ASPF minutes, 20 Oct. 1950, LMA/4494/A, NAPF collection, LMA.

44 Ibid.; ASPF minutes, 31 May 1951, 19 Oct. 1951, and 18 Jan. 1952, LMA/4494/A, NAPF collection, LMA; BIA IPC minutes, 13 Nov. 1950 and 11 Dec. 1950, CLC/B/017/MS29134A, ABI collection, LMA.

45 Minutes of the first meeting of the council of the Society of Investment Analysts, 13 May 1955, uncatalogued records, CFA Institute, London.

46 AIT minutes, 25 Sept. 1950, 21 Jan. 1952, and 21 Jan. 1957, CLC/B/018/MS38449, AIT collection, LMA.

47 On the ASPF's reluctance, see letter from L. W. Kempe, secretary of BIA IPC, to H. Hanks, organizing secretary of the ASPF investment coordination service, 2 Sept. 1959, CLC/B/018/MS38490, AIT collection, LMA; on Price Waterhouse, see BIA minutes, 10 May 1934 and 8 Apr. 1957, CLC/B/017/MS29134, ABI collection, LMA; ASPF minutes, 31 May 1951, 19 Oct. 1951, and 18 Jan. 1952, LMA/4494/A, NAPF collection, LMA.

48 ASPF minutes, 30 Jan. 1950, LMA/4494/A, NAPF collection, LMA.

49 On Naish, see ASPF minutes, 16 May 1952 and 17 Oct. 1952, LMA/4494/A, NAPF collection, LMA; on the investment cooperation service, see Report of the ASPF Annual General Meeting 6 August 1953, 10; ASPF, Circular Letter 166: Investment Cooperation (London, 1952); ASPF minutes, 29 Nov. 1952 and 29 Jan. 1953, LMA/4494/A, NAPF collection, LMA.

50 BIA IPC minutes, 14 Sept. 1953, CLC/B/017/MS29134A, ABI collection, LMA.

51 ASPF minutes, 29 Jan. 1953, LMA/4494/A, NAPF collection, LMA; Report of the ASPF Annual General Meeting 6 August 1953, 15.

52 Ibid.

53 ASPF minutes, 22 Sept. 1953 and 1 Feb. 1954, LMA/4494/A, NAPF collection, LMA; and BIA minutes, 4 Dec. 1953, BIA IPC minutes, 14 Sept. 1953, CLC/B/017/MS29134A, ABI collection, LMA; AIT minutes, 5 Oct. 1953, CLC/B/018/MS38449, AIT collection, LMA.

54 ASPF minutes, 15 Apr. 1954, LMA/4494/A, NAPF collection, LMA.

55 Report of the ASPF Annual General Meeting 6 August 1953, 14.

56 See Hannah, “Shareholders' ‘Dog.’”

57 BIA IPC minutes, 14 Nov. 1949, CLC/B/017/MS29134A, ABI collection, LMA.

58 On collaboration with the AIT, see BIA IPC minutes, 14 Nov. 1949 and 12 Dec. 1949; on lobbying, see BIA IPC minutes, 13 Feb. 1950; BIA IPC minutes, 13 Nov. 1950, CLC/B/017/MS29134A, ABI collection, LMA.

59 BIA IPC minutes, 10 Sept. 1951 and 8 Oct. 1951, CLC/B/017/MS29134A, ABI collection, LMA.

60 A. Ross Goobey, Money Moguls, 72; Institute of Actuaries Yearbook (London, 1930, 1933, 1937, 1940, 1941).

61 McKelvey, “Pension Fund Finance,” 113.

62 On Ross Goobey's employment at Legal and General, see Institute of Actuaries Yearbook (London, 1934 and 1936); Raynes, “The Place of Ordinary Stocks”; Raynes, “Equities and Fixed Interest.”

63 For example, Goobey, George Ross, “The Use of Statistics in the Investment of Funds,” Journal of the Royal Statistical Society, Series C (Applied Statistics) (1956): 2Google Scholar; Goobey, George Ross, “Pension Fund Investments,” ASPF 1956 Autumn Conference (London, 1956), 33Google Scholar.

64 A. Ross Goobey, Money Moguls, 72.

65 Hannah, Leslie, The Rise of the Corporate Economy (London, 1983)Google Scholar, 190; Alford, B. W. E., W. D. and H. O. Wills and the Development of the U.K. Tobacco Industry, 1786–1965 (London, 1973)Google Scholar.

66 “The Imperial Tobacco Company (of Great Britain and Ireland) Trust Deed and Rules Relating to Pension Fund and Saving Fund,” 4 Apr. 1929, File 38169/HAF/20/4, Bristol Records Office, Bristol, U.K.

67 Imperial Tobacco Company, Ogden branch, correspondence with the chief accountant of the Imperial Tobacco Co., file reference 380 OGD/1/7/7/9, Liverpool Records Office, Liverpool, U.K. (hereafter, OC, LRO); on Imperial Tobacco's chief accountant, see A. Ross Goobey, Money Moguls, 72.

68 “Imperial Tobacco Trust Deed and Rules,” point 14.

69 G. Ross Goobey, “Pension Fund Investment Policy.”

70 A. Ross Goobey, Money Moguls, 73; see also Corley, “George Ross Goobey”; Heywood, “Obituary,” 20; George Ross Goobey, “Review of Investment Policy for the Pension Fund,” appendix, 4 June 1957, LMA/4481/01/009, RGC, LMA.

71 Offer letter from N. Sullivan, Imperial Tobacco Company, to Sir James Grigg, 25 Feb. 1947, File 12/1, P. J. Grigg Collection, Churchill Archives Centre, Cambridge, U.K.; Plender, That's the Way the Money Goes, 40–41.

72 G. Ross Goobey, “Review of Investment Policy,” appendix.

73 George Ross Goobey, retirement lecture, National Association of Pension Funds, undated, uncatalogued records, RGC, LMA.

74 Institute of Actuaries Yearbook (London, 1950, 1951)Google Scholar.

75 G. Ross Goobey, “Pension Fund Investments,” 1956, 28.

76 George Ross Goobey, comment on McKelvey, “Pension Fund Finance,” in Transactions of the Faculty of Actuaries 25 (1957): 149; George Ross Goobey, “Pension Fund Investments,” undated working paper of speech given at the ASPF 1956 Autumn Conference, Nov. 1956, 3, LMA/4481/01/007, RGC, LMA.

77 Cheffins, Corporate Ownership, 354.

78 A. Ross Goobey, Money Moguls, 73; Whyte, Lewis G., Principles of Finance and Investment, vol. 1 (Cambridge, U.K., 1949), 31Google Scholar; see also Heywood, “Obituary”; Plender, That's the Way the Money Goes, 40.

79 G. Ross Goobey, “Review of Investment Policy,” 1.

80 See also Day, Gilfrid, “Developments in Investment Policy over the Past Decade,” Journal of the Institute of Actuaries 85 (1959): 139CrossRefGoogle Scholar.

81 Blakey, George, The Postwar History of the London Stock Exchange (Oxford, 1993), 44–45Google Scholar; Wincott, “Cult of Equity,” 4.

82 James Grigg, “Notes by Sir James Grigg,” 23 Aug. 1960, LMA/4481/01/10, RGC, LMA; see also Whitehouse, Brian Paul, Partners in Property: A History and Analysis of the Provision of Institutional Finance for Property Development (London, 1964), 107–13Google Scholar; Gordon, Two Tycoons, 60, 71.

83 George Ross Goobey, comment on B. C. Johnson, “Savings and Investment,” in NAPF Conference Report, Brighton 27 June 1970, Part 2 (London, 1970), 28–54, 50–52, LMA/4494/A/04/002, NAPF collection, LMA; George Ross Goobey, “So Simple to Manage Your Money,” Accountants Weekly, 6 June 1973, 35–38.

84 On 1947, see A. Ross Goobey, Money Moguls, 73; Plender, That's the Way the Money Goes, 40. On 1954, see G. Ross Goobey, “Use of Statistics,” 5; on 1958, see “A Pension Fund's Policy: An Interview with the Manager of the Imperial Tobacco Pension Fund,” Financial Times, 8 Dec. 1958; on 1961, see Goobey, George Ross, “Pension Fund Investment,” Stock Exchange Journal 7 (Winter 1961/62): 15–18Google Scholar, undated reprint at CLC/B/018/MS38490, AIT Collection, LMA.

85 G. Ross Goobey, “Pension Fund Investment,” 18; Blakey, Postwar History, 32–53.

86 G. Ross Goobey, “Pension Fund Investment Policy”; see also correspondence from the assistant accountant at the Imperial Tobacco Company to the secretary of the Tuebrook Packing Case Co., 28 Oct. 1948, file reference 380 OGD/1/7/7/9, OC, LRO.

87 George Ross Goobey, “The Effect of the Change in the Investment Policy of the Pension Fund, 2nd Draft,” 1, LMA/4481/01/006, RGC, LMA

88 G. Ross Goobey, “Pension Fund Investment Policy.”

89 G. Ross Goobey, “Review of Investment Policy.”

90 George Ross Goobey, “Notes on Investment Policy for the Pension Fund,” LMA/4481/01/002, RGC, LMA.

91 George Ross Goobey, “Note Prepared for Sir James Grigg to Endeavour to Reassure Him Why It Is Not Unsound to Sell a Security at a Loss,” LMA/4481/01/006 RGC, LMA; George Ross Goobey, “Random Thoughts on the Timing of Exchange from Fixed Interest Securities to Equities,” LMA/4481/01/001, RGC, LMA; G. Ross Goobey, “The Effect of the Change.”

92 ASPF minutes, 29 Jan. 1953, LMA/4494/A, NAPF collection, LMA; Report of the ASPF Annual General Meeting 6 August 1953, 8.

93 ASPF minutes, 17 July 1953, LMA/4494/A, NAPF collection, LMA.

94 ASPF minutes, 15 Apr. 1954, 6 Dec. 1954, and 4 Feb. 1955, LMA/4494/A, NAPF collection, LMA.

95 Black and Coffee, “Hail Britannia?”

96 ASPF minutes, 4 Feb. 1955; ASPF minutes, 5 Apr. 1955, LMA/4494/A, NAPF collection, LMA.

97 ASPF minutes, 17 Sept. 1954 and 6 Dec. 1954, LMA/4494/A, NAPF collection, LMA; and 4 Feb. 1955.

98 Kempe to Hanks, 2 Sept. 1959.

99 Bedfordshire County Council (Superannuation) Bill, 23 Mar. 1954, House of Commons Session 1953–54, File CCV32/5, Bedfordshire and Luton Archives and Records Service, Bedford, U.K.

100 Draft minutes of the Institute of Actuaries and Faculty of Actuaries Joint Standing Committee on Actuarial Practice, 4 Feb. 1955 and 4 Mar. 1957, uncatalogued records, Institute of Actuaries, London, U.K.

101 George Ross Goobey, “The Pension Fund Valuation Rate of Interest,” 19 May 1954, LMA/4481/01/003, RGC, LMA.

102 Ibid., 1.

103 Plender, That's The Way the Money Goes, 40.

104 ASPF minutes, 24 Sept. 1954, LMA/4494/A, NAPF collection, LMA; George Ross Goobey, “Pension Fund Investments,” 4 Oct. 1954, ASPF minutes, 6 Dec. 1954, LMA/4494/A, NAPF collection, LMA; ASPF minutes, 4 Feb. 1955; George Ross Goobey, “Pension Fund Investments,” Superannuation, Apr. 1955, 4.

105 G. Ross Goobey, “Pension Fund Investments,” 1955.

106 ASPF minutes, 4 Feb. 1955 and 5 Apr. 1955; ASPF minutes, 23 Sept. 1955, 19 Jan. 1956, and 6 Mar. 1956, LMA/4494/A, NAPF collection, LMA.

107 On the recommendation, see G. Ross Goobey, “Review of Investment Policy,” 1; Ellis and Vertin, Classics, 253. In the memorandum to the trustees dated 4 June 1957, Ross Goobey repeatedly states that the decision to invest in equities was made eighteen months previously, namely, at the end of 1955.

108 G. Ross Goobey, “Review of Investment Policy,” appendix.

109 For 1957, see G. Ross Goobey, “Review of Investment Policy,” 12; for 1958, see “A Pension Fund's Policy”; for 1961, see G. Ross Goobey, “Pension Fund Investment.”

110 G. Ross Goobey, “Pension Fund Investments,” 1956, 34.

111 George Ross Goobey, comment on John Gunlake, “Surplus or Deficit,” in Circular Letter 319: Report of the ASPF Autumn Conference, London, 22 November 1960 (London, 1960), 2–27, NAPF collection, LMA; G. Ross Goobey, “Pension Fund Investments,” 1956, 29; G. Ross Goobey, comment on Underwood, “Widows' and Orphans' Pension Schemes,” 17–18; G. Ross Goobey, comment on McKelvey, “Pension Fund Finance,” 150; G. Ross Goobey, comment on Heywood and Lander, “Valuations,” 355.

112 G. Ross Goobey, comment on Gunlake, “Surplus or Deficit,” 10–21.

113 ASPF minutes, 22 Sept. 1960, LMA/4494/A, NAPF collection, LMA; G. Ross Goobey, comment on Gunlake, “Surplus or Deficit,” 10–21.

114 Roberts, “Regulatory Responses,” 189; Bull and Vice, Bid for Power.

115 David Clutterbuck and Marion Devine, Clore: The Man and His Millions (London, 1987), 53.

116 AIT minutes, 13 May 1957, emphasis in original; AIT minutes, 18 Mar. 1957 and 3 May 1957, CLC/B/018/MS38449, LMA; Bull and Vice, Bid for Power; Clutterbuck and Devine, Clore; Cheffins, Corporate Ownership, 316.

117 There were earlier examples of entrepreneurs using similar tactics for the purpose of retaining control following an acquisition. See Armour and Skeel, “Who Writes the Rules,” 45–54; Cheffins, Corporate Ownership, 375; Hannah, “Shareholders' ‘Dog,’” 237, 244.

118 BIA IPC minutes, 10 Oct. 1955, CLC/B/017/MS29134A, ABI collection, LMA.

119 Bull and Vice, Bid for Power.

120 BIA IPC minutes, 12 Dec. 1955, CLC/B/017/MS29134A, ABI collection, LMA; ASPF minutes, 19 Jan. 1956.

121 On the ASPF, see AIT minutes, 18 Mar. 1957; on the AIT and the BIA, see AIT minutes, 21 Nov. 1955, 16 Jan. 1956, 21 Jan. 1957, CLC/B/018/MS38449, LMA; BIA IPC minutes, 11 Feb. 1957, CLC/B/017/MS29134A, ABI collection, LMA.

122 Roberts, “Regulatory Responses,” 194–95; Issuing Houses Association, Notes on Amalgamations of British Businesses (London, 1959), 2.

123 Kempe to Hanks, 2 Sept. 1959, 2.

124 ASPF minutes, 17 Sept. 1956, 22 July 1957, LMA/4494/A, NAPF collection, LMA; Kempe to Hanks, 2 Sept. 1959, 2; on the payment, see ASPF minutes, 16 Apr. 1959, LMA/4494/A, NAPF collection, LMA.

125 Kempe to Hanks, 2 Sept. 1959, 2.

126 ASPF minutes, 14 July 1960, 6 Apr. 1961, 19 Oct. 1961, 20 Nov. 1962, 17 Jan. 1963, LMA/4494/A, NAPF collection, LMA.

127 Minutes of the first annual general meeting of the Investment Protection Committee, 19 Nov. 1964, LMA/4494/A, NAPF collection, LMA.

128 Minutes of the second annual general meeting of the Investment Protection Committee, 19 Nov. 1965, LMA/4494/A, NAPF collection, LMA.

129 “Appointments: Mr. G. H. Ross Goobey joins board of Imperial Tobacco,” Financial Times, 21 Mar. 1963; see also cutting saved at CLC/B/018/MS38490, AIT collection, LMA.

130 Heywood, “Obituary.”

131 On the suggestion, see Sedgwick, R. Minturn, “A New Pension Plan: Maximum Benefits at Minimum Cost,” Harvard Business Review 31 (Jan./Feb. 1953): 70–82Google Scholar; on the rejection, see Day, “Investment Policy,” 131; Warters, Dennis N. and Rae, William M., “The Risks in Equity Investment for Pension Funds,” Transactions of the Society of Actuaries 31 (1959): 920–75Google Scholar.

132 Greenough, William C., It's My Retirement Money—Take Good Care of It: The TIAA-CREF Story (Homewood, Ill., 1990), 98–99Google Scholar.

133 Ibid., 184–95; Sass, Private Pensions, 301–2; Black and Coffee, “Hail Britannia?” 2014.

134 Gold, Jeremy, “Accounting/Actuarial Bias Enables Equity Investment by Defined-Benefit Pension Funds,” North American Actuarial Journal 9 (2005): 1–21CrossRefGoogle Scholar; Coronado, Julia Lynn and Sharpe, Stephen A., “Did Pension Fund Accounting Contribute to a Stock Market Bubble?” Brookings Papers on Economic Activity 1 (2003): 323–71CrossRefGoogle Scholar.

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136 Black and Coffee, “Hail Britania?” 2014.

137 Hannah, “Shareholders' ‘Dog.’”