Boston banks keep trade lanes open
Boston — To the prosperous 19th-century sea captain there was one task almost as important as mending sails to be accomplished before setting out on a long voyage from Boston's busy harbor: He must make sure his sizable wealth would be well managed during the many months he was away.
That tradition, combined with the state's distinction as an early manufacturing center, helped make Boston one of the oldest of the nation's "money centers."
Though it is in an area better known for its universities and computers, Boston's financial district -- staid office buildings lining former cow paths that wandered through what is now downtown -- is the working center for legions of pin-striped bankers and money managers who control, by some estimates, well over $100 billion in assets.For comparison, the 1981 budget of the US government calls for $662.7 billion in spending.
And while this money is invested all over the world, many of the growing new companies in Massachusetts have also benefitted.
"They [money managers] often begin by investing in Fortune 500 companies," says George J. Guilbault, a vice-president with Johnson & Higgins, a pension consulting firm. "But when they start looking for companies in the second tier, they'll turn to their own backyard."
Some of these investors are venture capitalists who help finance and lay the groundwork for new companies. These risk-taking investors have helped greatly many high technology and computer companies in the Boston area.
"Almost all the high-tech companies that have started in this area had venture capital behind them," said Peter Brooke, general partner of TA Associates, a venture capital firm. He estimates the ten private venture capital firms in the Boston area control about $350 million in investment capital and that about 40 percent of this is helping Boston area firms.
The venture capitalists, of course, are only one part of the city's money business.
* The city is a highly competitive banking arena, where several small savings and loans exist side by side with multibillion-dollar commercial banks dealing in international business. The city is not considered a major banking center today. In this mature and highly competitive financial market, the largest bank , the First National Bank of Boston, is 17th largest in deposits among the nation's banks. The city's next biggest, New England Merchants National Bank, is 73rd. And these are the only two Boston banks on a list of the 500 largest banks in the world published by the American Banker, a trade journal.
* The modern US mutual fund industry, founded in Boston in 1924, has flourished. There are 113 mutual funds headquartered in Massachusetts, according to the Investment Company Institute, the mutual fund trade organization. Almost all of these are in Boston. The city is second to New York City in mutual fund assets; but considering New York has many times the population, Boston's per capita share of this industry is, said one banker, "staggering."
If the money market funds are not included, Boston's mutual funds manage some funds can count over $7.8 billion in assets in Boston, or about 9.3 percent of the nation's $83.9 billion total.
* Poking out of the Back Bay, the city's two tallest buildings, the Prudential and John Hancock towers, represent Boston's position as a leader in the insurance industry. While it does not have the status of another New England city -- Hartford, Conn. -- it has two firms in the top 20, John Hancock Mutual Life and New England Mutual Life.
Within these industries are pension and trust departments (financial descendants of the men who tended to the sea captain's fortune) that manage unknown billions belonging to individuals, corporations, foundations, universities, and labor unions. It is, however, difficult to total up exactly the volume of these assets.
Besides providing investment capital for growing companies in Massachusetts as well as jobs for thousands of people who like to play with numbers, Boston's three-piece suit crowd lends substantial support to one of the factors in keeping these people here: its cultural attractions.
"It helps us in two ways," said Walter Hill, business manager for the Boston Symphony Orchestra. "First, we have quite a few of them on our board of directors, and they provide good financial advice. Second, we receive substantial support from Boston-based corporations and businesses." The area does not have as many large manufacturers and large corporate headquarters that support orchestras and museums in other cities, he pointed out. However, metropolitan Boston does have more than its share of professionals, many in the financial area, who support cultural institutions.
Attractions like these, plus the presence of several business schools, including Harvard's, Babson College, and the Sloan School of Management at the Massachusetts Institute of Technology, help assure Boston's future as a financial center, says Ralph Kimball, a monetary economist at the Federal Reserve Bank of Boston.
"These schools provide a ready source of raw material," he noted