A dozen years ago, hot dogs and peanut butter were about the only affordable fare for Bruce Bent and Henry Brown, the inventors of the money-market mutual fund. Their creation, registered in 1971 as the Reserve Fund, offered big yields to small savers for the first time and eventually spawned a $200 billion industry. At the outset, the idea yielded Brown and Bent little besides frustration, but nowadays they are a couple of happy millionaires.
The two men were partners in a financial consulting business in 1969 when they observed that it was possible to get 8% or 9% on short-term investments in money-market instruments, whereas consumers were earning only 5% in passbook savings accounts. The hitch was that most people did not have the $100,000 or so that it took to buy higher-yielding investments, such as commercial paper and certificates of deposit. Brown and Bent's solution: a mutual fund that would allow lots of people to pool their money and get into the higher-yielding market. They worked out details while facing each other across their back-to-back desks.
At first, though, customers shied away from the novel fund. Brown had financed the venture with $150,000, but that quickly began to go. Bent, who put up nothing, was paid a salary of $11, 000 in 1971 but got no pay at all in 1972. (Those were the hot dog years.) Looking for shareholders for the fund, the pair got in touch with 125 brokerage firms, insurers and other prospects. None would invest. "We were exhausted financially and emotionally," recalls Bent. Salvation arrived on Jan. 7, 1973, in the form of a New York Times article on Reserve. The publicity boosted its assets from $400,000 to $ 1 .9 million in less than a month.
Reserve's investments now total some $3 billion, making the fund the 20th largest of its type in the U.S. And while Brown, 56, and Bent, 45, will not say how much money their idea has brought them, the sum would obviously buy a lot of hot dogs. The two are sole general partners of the company that manages the fund's assets, and the company was paid $13.1 million during fiscal 1982 for running the money. Brown and Bent say that they have plowed much of the income back into the business over the years, investing some $11 million in computer hardware and software. Says Brown: "We could declare ourselves nice, huge salaries and go out and buy yachts, but that's not our inclination." Like the managers of other money-market mutual funds these days, however, they often dream of buying a bank.