Henry B. R. Brown
Encyclopedia
Henry Bedinger Rust "Harry" Brown (February 13, 1926 – August 11, 2008) was an American
financial consultant known for inventing the world's first money market fund, The Reserve Fund, with Bruce R. Bent
in 1970.
, where his father worked for a company that manufactured blast furnaces. He attended Harvard University
, where he was a cartoonist for the Harvard Lampoon
. After graduating from college he worked for Chemical Bank in the early 1950s and later worked for a company that would later become part of Citibank
. In 1963 he joined Teachers Insurance and Annuity Association in a position where he managed the firm's securities investments.
in 1980, a United States banking law known as Regulation Q
, which was enacted by Congress during the Great depression
as part of the Glass–Steagall Act, prohibited banks from paying interest on demand deposit
checking accounts. While well-heeled investors could earn high yields by purchasing certificates of deposit or commercial paper
, investments that required investments that could reach hundreds of thousands of dollars, typical consumers were effectively frozen out of this market. Banks in the United States were able to gather substantial funds that they were able to lend out with interest without paying any returns on the funds they had received from depositors.
Sitting around their office in August 1969 and brainstorming, Bent suggested that a mutual fund
could be created that would allow small investors to combine their resources and gain access to the higher yields available from purchasing a pool of CDs and commercial paper. Neither of them knew anything about the intricacies and legalities of opening a mutual fund, but research by Brown confirmed that the type of money market mutual fund that they had conceived of would be legal in all 50 states. They established the Reserve Fund to implement their idea, which languished in its first several years, building up $250,000 in debts. Early on, individuals and corporations could invest in the fund by putting in as little as $1,000. Shares in the fund were $100 each, with "dividends" paid as additional fractional shares in the account, keeping the value of each fund share at a constant price. The fund charged a management fee of 50 basis points. Though other banks and investment firms were looking at creating money market funds of their own, Bent and Brown were confident that the enormous size of the potential market and their ability to keep costs low would allow them to compete with their larger competitors.
They turned the corner after an article in the January 7, 1973 issue of The New York Times
brought much-needed attention to their innovation. By the end of that year they had garnered investments of $100 million. The money market fund industry grew by leaps and bounds, becoming an industry that had amassed $3.5 trillion in assets by the time of Brown's death in 2008, with the Reserve Fund alone accounting for $62 billion in assets.
The invention of the money market fund by Bent and Brown was credited by the American Museum of Financial History, an affiliate of the Smithsonian Institution
, as a major innovation in the financial history of the United States. Paul Samuelson
, winner of the Nobel Memorial Prize in Economic Sciences
in 1970, said in a speech in 2001 that Bent and Brown deserved to win a Nobel prize themselves. Upon hearing of Samuelson's statement, Brown remarked that he couldn't "say that our 'invention' resulted from any brilliance on our part", continuing that "it was actually a combination of the threat of starvation and pure greed that drove us to it".
Money market funds seek to maintain a stable $1.00 net asset value
, never losing money. In the financial turmoil following the September 2008 bankruptcy of Lehman Brothers
, just one month after Brown's death, the Reserve Fund saw a run on its investments after it marked down to zero the value of assets it had invested in Lehman's securities, forcing it to "break the buck", leaving investors who had held onto their investments in the fund to lose as much as three to five percent of their investment.
.
Brown died at age 82 of an abdominal aneurysm on August 11, 2008, at his home in Leesburg, Virginia
. His residence had been owned by members of his family for more than 200 years. Brown's grandfather was United States federal judge
Addison Brown
, who was also a botanist and one of the founders of the New York Botanical Garden
. An earlier ancestor was Virginia statesman Richard Henry Lee
, whose June 1776 resolution
led to the United States Declaration of Independence
. Brown was unsure just how many "greats" of a grandfather Lee was to him.
He was survived by his wife, Betsey, as well as by two daughters, two sons and 10 grandchildren.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
financial consultant known for inventing the world's first money market fund, The Reserve Fund, with Bruce R. Bent
Bruce R. Bent
Bruce R. Bent invented the world's first money fund, The Reserve Fund, with Henry B. R. Brown in 1970. This financial product was recognized by the American Museum of Financial History, an affiliate of the Smithsonian Institution, for its importance and impact on the nation's financial history...
in 1970.
Early career
Brown was born on February 13, 1926 in Pittsburgh, PennsylvaniaPennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
, where his father worked for a company that manufactured blast furnaces. He attended Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
, where he was a cartoonist for the Harvard Lampoon
Harvard Lampoon
The Harvard Lampoon is an undergraduate humor publication founded in 1876 at Harvard University in Cambridge, Massachusetts.-Overview:Published since 1876, The Harvard Lampoon is the world's longest continually published humor magazine. It is also the second longest-running English-language humor...
. After graduating from college he worked for Chemical Bank in the early 1950s and later worked for a company that would later become part of Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
. In 1963 he joined Teachers Insurance and Annuity Association in a position where he managed the firm's securities investments.
Inventing the money market fund
Until it was overturned by the passage of the Depository Institutions Deregulation and Monetary Control ActDepository Institutions Deregulation and Monetary Control Act
The Depository Institutions Deregulation and Monetary Control Act, a United States federal financial statute law passed in 1980, gave the Federal Reserve greater control over non-member banks.* It forced all banks to abide by the Fed's rules....
in 1980, a United States banking law known as Regulation Q
Regulation Q
Regulation Q is Title 12, part 217 of the United States Code of Federal Regulations. It prohibits banks from paying interest on demand deposits in accordance with Section 11 of the Glass–Steagall Act ....
, which was enacted by Congress during the Great depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
as part of the Glass–Steagall Act, prohibited banks from paying interest on demand deposit
Demand deposit
Demand deposits, bank money or scriptural money are funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the money supply of a country.-History:...
checking accounts. While well-heeled investors could earn high yields by purchasing certificates of deposit or commercial paper
Commercial paper
In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-market security issued by large banks and corporations to get money to meet short term debt obligations , and is only backed by an issuing bank or...
, investments that required investments that could reach hundreds of thousands of dollars, typical consumers were effectively frozen out of this market. Banks in the United States were able to gather substantial funds that they were able to lend out with interest without paying any returns on the funds they had received from depositors.
Sitting around their office in August 1969 and brainstorming, Bent suggested that a mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
could be created that would allow small investors to combine their resources and gain access to the higher yields available from purchasing a pool of CDs and commercial paper. Neither of them knew anything about the intricacies and legalities of opening a mutual fund, but research by Brown confirmed that the type of money market mutual fund that they had conceived of would be legal in all 50 states. They established the Reserve Fund to implement their idea, which languished in its first several years, building up $250,000 in debts. Early on, individuals and corporations could invest in the fund by putting in as little as $1,000. Shares in the fund were $100 each, with "dividends" paid as additional fractional shares in the account, keeping the value of each fund share at a constant price. The fund charged a management fee of 50 basis points. Though other banks and investment firms were looking at creating money market funds of their own, Bent and Brown were confident that the enormous size of the potential market and their ability to keep costs low would allow them to compete with their larger competitors.
They turned the corner after an article in the January 7, 1973 issue of The New York Times
The New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...
brought much-needed attention to their innovation. By the end of that year they had garnered investments of $100 million. The money market fund industry grew by leaps and bounds, becoming an industry that had amassed $3.5 trillion in assets by the time of Brown's death in 2008, with the Reserve Fund alone accounting for $62 billion in assets.
The invention of the money market fund by Bent and Brown was credited by the American Museum of Financial History, an affiliate of the Smithsonian Institution
Smithsonian Institution
The Smithsonian Institution is an educational and research institute and associated museum complex, administered and funded by the government of the United States and by funds from its endowment, contributions, and profits from its retail operations, concessions, licensing activities, and magazines...
, as a major innovation in the financial history of the United States. Paul Samuelson
Paul Samuelson
Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in...
, winner of the Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
in 1970, said in a speech in 2001 that Bent and Brown deserved to win a Nobel prize themselves. Upon hearing of Samuelson's statement, Brown remarked that he couldn't "say that our 'invention' resulted from any brilliance on our part", continuing that "it was actually a combination of the threat of starvation and pure greed that drove us to it".
Money market funds seek to maintain a stable $1.00 net asset value
Net asset value
Net asset value is a term used to describe the value of an entity's assets less the value of its liabilities. The term is most commonly used in relation to open-ended or mutual funds because shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net...
, never losing money. In the financial turmoil following the September 2008 bankruptcy of Lehman Brothers
Bankruptcy of Lehman Brothers
Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. The bankruptcy of Lehman Brothers remains the largest bankruptcy filing in U.S...
, just one month after Brown's death, the Reserve Fund saw a run on its investments after it marked down to zero the value of assets it had invested in Lehman's securities, forcing it to "break the buck", leaving investors who had held onto their investments in the fund to lose as much as three to five percent of their investment.
Personal life
After his retirement from the financial industry, he joined with partner Chris Gerow in competing in the annual Punkin Chunkin event held in DelawareDelaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...
.
Brown died at age 82 of an abdominal aneurysm on August 11, 2008, at his home in Leesburg, Virginia
Leesburg, Virginia
Leesburg is a historic town in, and county seat of, Loudoun County, Virginia, United States of America. Leesburg is located west-northwest of Washington, D.C. along the base of the Catoctin Mountain and adjacent to the Potomac River. Its population according the 2010 Census is 42,616...
. His residence had been owned by members of his family for more than 200 years. Brown's grandfather was United States federal judge
United States federal judge
In the United States, the title of federal judge usually means a judge appointed by the President of the United States and confirmed by the United States Senate in accordance with Article II of the United States Constitution....
Addison Brown
Addison Brown
Addison Brown was a United States federal judge.Brown was born in West Newbury, Massachusetts, and was educated at Amherst College. He received an A.B. from Harvard University in 1852, and an LL.B. from Harvard Law School in 1854...
, who was also a botanist and one of the founders of the New York Botanical Garden
New York Botanical Garden
- See also :* Education in New York City* List of botanical gardens in the United States* List of museums and cultural institutions in New York City- External links :* official website** blog*...
. An earlier ancestor was Virginia statesman Richard Henry Lee
Richard Henry Lee
Richard Henry Lee was an American statesman from Virginia best known for the motion in the Second Continental Congress calling for the colonies' independence from Great Britain. He was a signatory to the Articles of Confederation and his famous resolution of June 1776 led to the United States...
, whose June 1776 resolution
Lee Resolution
right|thumb|[[Richard Henry Lee]] proposed the resolution on June 7, 1776.The Lee Resolution, also known as the resolution of independence, was an act of the Second Continental Congress declaring the United Colonies to be independent of the British Empire...
led to the United States Declaration of Independence
United States Declaration of Independence
The Declaration of Independence was a statement adopted by the Continental Congress on July 4, 1776, which announced that the thirteen American colonies then at war with Great Britain regarded themselves as independent states, and no longer a part of the British Empire. John Adams put forth a...
. Brown was unsure just how many "greats" of a grandfather Lee was to him.
He was survived by his wife, Betsey, as well as by two daughters, two sons and 10 grandchildren.