Remembrances - WSJ.com

Remembrances - WSJ.com: "Co-Inventor of Money-Market Account
Helped Serve Small Investors' Interest
By STEPHEN MILLER
August 16, 2008; Page A7

Co-Inventor of Money-Market Account
Helped Serve Small Investors' Interest
By STEPHEN MILLER
August 16, 2008; Page A7

With an engineer's love of tinkering and an economist's dislike of inefficiency, Henry B.R. Brown co-invented the money-market mutual fund, a high-interest financial instrument taken up by millions of small investors starting during the long bear market of the 1970s.
[Remember]
Libby Brown Devlin

But when Mr. Brown, who died Aug. 11 at age 82, and his business partner, Bruce Bent, dangled their prospectus in front of Wall Street investment houses, they were quickly shown the door.

Too expensive, complained brokers used to sitting on their clients' money without paying interest. Too complicated, complained bankers accustomed to calculating interest quarterly. Possibly illegal, sniffed the Securities and Exchange Commission, which sat on Brown & Bent's registry application for months.

"It's illegal, it's immoral, it's fattening," is the way Mr. Bent remembers the response today. He says there were 144 rejections in all. Today, he heads The Reserve, successor to the path-breaking Reserve Fund Inc., with $130 billion under management. Some $3.5 trillion is invested in money-market funds, about a third of the total in all mutual funds, according to an industry tracker, the Investment Company Institute.

"There ought to be a monument to Bruce Bent and Harry Brown, who dreamed up the money-market account and dared to lead the great exodus out of the Scroogian thrifts," wrote famed investor Peter Lynch in "One Up on Wall Street."

Mr. Lynch was referring to the days when the Federal Reserve Board's Regulation Q capped interest rates. Only those able to invest larger amounts -- say $100,000 -- could get 8% or more in government Treasury bills and other highly rated investments, many of them as safe as a savings account or nearly so.

The banks "had tremendous margins to play with," Mr. Brown told Forbes in 1985. "[T]hey were getting money at 5¼% and they could lend it out at 10% or better."

A native of Pittsburgh, Mr. Brown drew cartoons for the Crimson at Harvard. He came to Wall Street after dropping out of graduate architecture studies, and worked at Citibank among other places before starting a partnership in 1968 with Mr. Bent, formerly his administrative assistant.

Their money-managing business got off to a slow start, as high interest rates discouraged investors from putting money into bonds, Mr. Brown's area of expertise. Hungry for customers, they hit on the idea of aggregating small investments to buy high-interest instruments such as Treasury bills that required a high minimum investment.

"A combination of starvation and pure greed drove us to it. Yet it took a great deal of research," Mr. Brown later wrote in a letter saved by his family. That included researching banking regulations in all 50 states, and learning how to program time-sharing computers to handle the interest calculations.

Reserve Fund opened in 1972 to a less-than-resounding response, leaving the two founders with second mortgages they had used to fund their enterprise and no clue whether it would pan out. Their kids helped stuff envelopes. "I remember one year, my father worked every single day except Christmas," says Mr. Brown's son Peter.

Help came in the form of a laudatory January 1973 article in the Sunday New York Times, in which the founders said they were mostly aiming at corporate investors and investment counselors, but were also open to individuals.

The next day brought a hundred callers, says Mr. Bent. By the end of 1973, the partners had $100 million under management and investors in the second half of the year received a 9% yield.

Competitors, including some who had rejected the initial prospectus, were quick to offer money-market funds of their own with names such as Dreyfus Liquid Assets, Fidelity Daily Income Trust and Merrill Lynch Ready Assets. Brokerages came to appreciate the funds as a great place to put the money of customers who had sold stock and bond funds. Regulation Q was phased out in 1986.

"After the funds hit, commercial paper exploded," says Brian Reid, chief economist at the Investment Company Institute, referring to a common type of corporate short-term borrowing. He adds, "Money-market funds reduced the cost of borrowing in the economy for corporations."

"It is hard to imagine the days when consumers did not receive interest on their demand deposits," says Jerry W. Markham, author of "A Financial History of the United States."

Reserve Fund expanded more slowly than some others, in part because it didn't market to retail customers such as big brand-name brokerages, Mr. Brown believed. "How do you compete with Coca-Cola?" adds Mr. Bent.

In 1985, Mr. Brown decided to return to his family's ancestral home in Loudoun County, Va., where he raised cattle on 500 acres of land. He retained his half of the partnership, but left most of the day-to-day business to Mr. Bent and sold out in 1999.

In the late 1990s, he became involved with trebuchet, in which enthusiasts attempt to catapult large objects over long distances. At the annual World Championship Punkin Chunkin, in Millsboro, Del., his group's King Arthur machine won the trebuchet division three straight years starting in 2001, chucking an eight-pound pumpkin as much as 1,150 feet.

"He just hated inefficiencies," says Peter Brown. "He'd give you a lecture on the best way to load the dishwasher."