The Money Flood: How Pension Funds Revolutionized Investing [Hardcover]

Michael J. Clowes (Author)

Book Description

Publication Date: June 23, 2000 | ISBN-10: 0471384836 | ISBN-13: 978-0471384830 | Edition: 1

Praise for Michael J. Clowes and the money flood

"What a fine book! As an active participant in the revolution in pension investing, I could almost feel the times and tides of the past half-century shifting beneath me. Mike Clowes's splendid and articulate tour through the era is destined to become a landmark on the bookshelves of everyone interested in this illuminating history of the past, as well as its portents of the future."-John C. Bogle, founder, The Vanguard Group

"The corporate pension fund ranks high among the spectacular financial innovations of the twentieth century. Mike Clowes has built a fascinating story about the impact of this flood of money on the theory and practice of investing, the financial markets, the labor force, corporate management, and the general economy. The far-reaching consequences of these changes make this authoritative and lively book must-reading for everyone."-Peter L. Bernstein, President, Peter L. Bernstein, Inc., author, Against the Gods: The Remarkable Story of Risk

"The definitive history of the rise of pension fund capitalism in America."-Keith Ambachtsheer, President, KPA Advisory, author, Pension Fund Excellence: Creating Value for Shareholders

"Beautifully written, broad in coverage of all the best parts of a great American story, Mike Clowes's new book gives us an easy-to-read and easy-to-enjoy explanation of who did what and when in the investment revolution of the past half-century."-Charles D. Ellis, Partner, Greenwich Associates, author, The Investor's Anthology: Original Ideas from the Industry's Greatest Minds

Editorial Reviews

From the Inside Flap

"Michael Clowes has produced a classic chronicling the phenomenal growth of pension funds over the last fifty years and their pervasive impact upon the world we live in. Our world, however, should take note of his sobering warning about what we have to lose if defined benefit pension plans continue to be replaced by the currently more popular defined contribution plans."–Russell Olson, author of The Independent Fiduciary: Investing for Pension Funds and Endowment Funds

In 1948, when the National Labor Relations Board ruled that pension issues could be included in union contract negotiations, no one suspected this victory for employees across the country would trigger an economic revolution. Over the past fifty years, the pension fund industry has mushroomed into the largest concentration of managed money in the world. As a result, the decisions of fund managers reverberate throughout the global financial markets. But is there a price to pay for this dramatic reshaping of the economy?

A journalist who has covered the subject for more than twenty-five years now tells the story of how the pension fund industry came to dominate the financial markets–and how its spectacular growth is likely to affect us in the years ahead. Delving into the virtually unexamined history of this landmark decision and the subsequent flood of money that poured into the stock market, Michael Clowes reveals both an intriguing chronicle and a sobering warning signal for what we can expect as the growth of 401(k) plans shifts investing power away from traditional pension managers, and as aging baby boomers begin to cash in.

Expertly written and exceptionally thought-provoking, The Money Flood issues a crucial wake-up call to the investment industry–and to the overwhelming number of those whose futures are dependent on its performance.

From the Back Cover

Praise for Michael J. Clowes and the money flood

"What a fine book! As an active participant in the revolution in pension investing, I could almost feel the times and tides of the past half-century shifting beneath me. Mike Clowes’s splendid and articulate tour through the era is destined to become a landmark on the bookshelves of everyone interested in this illuminating history of the past, as well as its portents of the future."–John C. Bogle, founder, The Vanguard Group

"The corporate pension fund ranks high among the spectacular financial innovations of the twentieth century. Mike Clowes has built a fascinating story about the impact of this flood of money on the theory and practice of investing, the financial markets, the labor force, corporate management, and the general economy. The far-reaching consequences of these changes make this authoritative and lively book must-reading for everyone."–Peter L. Bernstein, President, Peter L. Bernstein, Inc., author, Against the Gods: The Remarkable Story of Risk

"The definitive history of the rise of pension fund capitalism in America."–Keith Ambachtsheer, President, KPA Advisory, author, Pension Fund Excellence: Creating Value for Shareholders

"Beautifully written, broad in coverage of all the best parts of a great American story, Mike Clowes’s new book gives us an easy-to-read and easy-to-enjoy explanation of who did what and when in the investment revolution of the past half-century."–Charles D. Ellis, Partner, Greenwich Associates, author, The Investor’s Anthology: Original Ideas from the Industry’s Greatest Minds

See all Editorial Reviews

Product Details

• Hardcover: 304 pages
• Publisher: Wiley; 1 edition (June 23, 2000)
• Language: English
• ISBN-10: 0471384836
• ISBN-13: 978-0471384830
• Product Dimensions: 9.3 x 6.3 x 1.1 inches
• Shipping Weight: 1.5 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (2 customer reviews)
• Amazon Best Sellers Rank: #953,877 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

12 of 12 people found the following review helpful:

5.0 out of 5 stars An excellent survey of the US pensions business, August 29, 2000

By 

Anthony Golding - See all my reviews
(REAL NAME)   

This review is from: The Money Flood: How Pension Funds Revolutionized Investing (Hardcover)

As a UK-based observer of the asset management scene (my book "The City: Inside The Great Expectation Machine is due out in November: details on Amazon.co.uk) I found this comprehensive analysis of the development and current state of the US pension fund industry both extremely clear and interesting to read. It explained many things to me that are barely understood on this side of the Atlantic and, I suspect, insufficiently well understood even in the USA by professionals who are not pensions specialists let alone the American investing public. For example, the precise origins and intentions of the 401(k) plan, the way in which ERISA and its refinements changed the investment management industry, and the profound influence of defined benefit pension funds on venture capital activity and foreign equity investment. Anyone who is interested in what makes stock markets tick should be interested in what this book has to say about pension funds, the people who manage them and the impact that they have.

16 of 18 people found the following review helpful:

5.0 out of 5 stars A Fascinating Read about the Financial Revolution, August 8, 2000

By 

Bruce I Jacobs - See all my reviews

This review is from: The Money Flood: How Pension Funds Revolutionized Investing (Hardcover)

In The Money Flood, Michael Clowes, Editorial Director of Pensions & Investments, presents an instructive and entertaining overview of the pension fund industry and its effects on financial markets. The book begins with the National Labor Relations Board's 1948 holding that contract negotiations between employers and employees had to consider pensions-a watershed decision, Clowes argues, because it encouraged the growth of pensions funds and thus fostered their largely beneficial effects on markets and the economy. In the 50 years since, pension assets grew from $14.3 billion to almost $9 trillion, and the business itself matured from a small-club dominated by a few large corporations, bank trust departments, and insurance companies invested mostly in bonds to a diversified industry encompassing money managers, consultants, and mutual funds with investments in equity, real estate, commodities, start-up ventures, and overseas markets.

Clowes' chronological approach to this story is held together by several major themes. Primary, of course, is the fact that the growth in pension funds raised a vast flow of capital and unleashed it into America's markets. However, the effects of this new capital might not, Clowes suggests, have been as salutary, had not this flow of money encouraged the development of the investment technology and the investment professionals to manage it.

The "professionalization" of pension fund management had at least two beneficial effects. First, it allowed for the spread of pension money beyond bonds into more growth-building investments, including equity and venture capital. Second, it allowed for the spread of capital beyond the corporations that actually sponsored the pension funds. Clowes makes the interesting point that this has not been the case in Japan or Germany, say, where pools of pension money (smaller to begin with) have been generally confined to the sponsoring company and its affiliates, hence have not generated the wealth, for pension beneficiaries or the overall economy, that America's system has.

The book highlights the major turning points and participants in the development of the industry. These include the work of Harry Markowitz, Bill Sharpe, Fischer Black and others in financial technology; the efforts of Meyer Melnikoff at Prudential and Anders Voorhees at U.S. Steel to expand pension investing to stock; George Russell, Jr. and the development of the pension consulting business; Harrison Smith and the early moves to international pension investing at Morgan Guaranty; David Bronner's experiments with social investing at the Alabama Retirement System; and John Bogle and the growth of mutual funds.

A leading role throughout is played by the U.S. government. Sometimes it comes out as hero, as with the Employee Retirement Income Security Act of 1974, which Clowes sees as enhancing the good effects of pension investing by replacing the old "prudent man" standard with a "prudent expert" standard more suitable for pension professionals. In recent years, however, the government has played the villain, by passing legislation that has stifled defined benefit plans. Clowes makes a convincing argument that their replacements-401(k)s and other defined contribution plans-will not be able to offer similar benefits in the way of retirement security and incentives to overall economic growth.

The Money Flood is a well-deserved pat on the back for those pension plan sponsors, consultants, investment advisors, and academics that have, over the past 50 years, created a financial revolution that benefited all Americans. It is "must" reading for all who seek to understand the development and workings of the pension fund industry.

Bruce I. Jacobs, Principal, Jacobs Levy Equity Management.