When Edward Morris began his finance career on Wall Street, investing largely came down to two asset classes: stocks and bonds. The impact of hedge funds, derivative securities, venture capital, and index funds has been enormous, Morris told students at the Colloquium in Asset Management on October 26.
“Much of the transformation and creation of those new asset classes is really what shaped Wall Street today,” said Morris, a professor of finance and former dean of the business school at Lindenwood University, in a conversation with Professor Andrew Metrick. Morris has profiled 14 men who created those asset classes in a new book, titled Wall Streeters: The Creators and Corruptors of American Finance.
“The people I chose to profile were really the pioneers in coming up with those asset classes. They all have interesting stories, and they’ve all faced major setbacks in their lives and had to overcome things to see these asset classes through a very difficult birth.”
Among those profiled is William H. Donaldson, the founding dean of the Yale School of Management, who was in attendance. Morris credited Donaldson with “transforming the world of investment banking” when his firm, Donaldson, Lufkin and Jenrette, announced to the New York Stock Exchange that it planned to sell stock to the public.
“Everything was closely held as partnerships” at the time, Morris said. “There was no way for firms to raise capital on their own… At the end of the year, partners split their profits, and there were no retained earnings.”
“He went against all of the rules and announced to the New York Stock Exchange that they were going to go public. They weren’t going to ask permission; they were going to ask forgiveness. Everyone else followed, and it created the necessary capital for investment banks to operate in the market.”
Morris also told the story of John C. Bogle, the founder of Vanguard, and his idea to create a lower-cost asset that tracked a specific segment of the market—what is now known as an index fund. Bogle attempted to raise $150 million in 1976 for the first fund, but only raised $11 million.
“That’s probably the amount now sold in an index every one second,” Morris said. “Bogle was driven and kept at it. Now, the assets at Vanguard are closer to two trillion dollars, maybe even three. He knew he had to stick to it… His idea was that a fund should not be operated on behalf of the managers of a mutual fund, but for the shareholders. That was a controversial thought at the time.”
About the Event
Author Ed Morris will be on campus October 26 for a Colloquium in Asset Management. Mr. Morris is former dean of the business school at Lindenwood University and author of Wall Streeters: The Creators and Corruptors of American Finance. Morris will be joined in conversation by Andrew Metrick, Michael H. Jordan Professor of Finance and Management, and William H. Donaldson, founding dean of Yale School of Management.
Copies of Morris’s book will be available at the talk.
This event is open to the public.
Ed Morris is a professor of finance and former dean of the business school at Lindenwood University. Before beginning his teaching career, he was an investment banker and served as executive vice president of Stifel, Nicolaus & Co. He holds degrees from Washington University in St. Louis (AB), Wharton (MBA), and St. Louis University (PhD), and has served on the boards of companies listed on the New York Stock Exchange, the American Stock Exchange, and NASDAQ.