Reborn in America, I am a legendary short seller on Wall Street.

Chapter 212 The Last Piece of the Wall Street Puzzle—The Fund Industry
Larry's remarks surprised Mr. Eastman, who looked at the blond young man who could pull out a JP Morgan business card from his pocket with a puzzled expression.

"Can you really guarantee that you will have at least 50 yuan in funds raised?"

Larry nodded emphatically and said, "If you can really deliver the 16.6% equity corresponding to $50, I can guarantee at least $50 in financing."

Eastman didn't answer immediately. Instead, he stared at the ceiling, his fingers sliding across his knees, and after calculating for a long time, he solemnly addressed the two of them.

“Great!! With this 50, I can at least guarantee that Eastman Kodak will expand on a minimal scale. Although it's not ideal, it's better than nothing. However, I will still stick to my original share.”

Larry and Mr. Porter both nodded in agreement.

After Eastman left, Mr. Potter frowned and looked at Larry.
"The 50 investment you just mentioned, if I'm not mistaken, is it for you to invest in Eastman Kodak yourself?"

Larry nodded. "Yes, it's a good company, and I think I should invest."

Mr. Potter nodded, then frowned and asked, "What about the other 97? How are you going to raise that much?!"

Larry smiled and looked at Mr. Porter, saying, "Me? No! Not me, but you. You should get that $97."

Mr. Potter was startled and sat up abruptly, asking in surprise, "Why me? How could I get so much money?"

Larry laughed and said, "Mr. Porter, you have a vast network of connections, and those wealthy people are seeking your help in professional investment. You can't let such a great opportunity pass you by just by acting as their stock trading agent!"

Mr. Porter became even more curious. "You mean, setting up a trust?"

“It’s a trust, but not the kind of trust we understand now,” Larry replied.

The concept of trust originated in ancient Rome. To circumvent legal restrictions on inheritance, Romans would entrust their property to a third party, requesting that the third party manage the assets for the benefit of their spouse or children.

By the 19th century, family trusts in the modern sense began to gain popularity. However, at this time, the main purpose of trusts was not investment profit, but rather the inheritance and protection of one's assets.

Because the main function of a trust at this time is asset isolation, once assets are transferred into a trust, they are independent of the other property of the settlor, trustee and beneficiary, which can play a role in risk isolation.

Therefore, the current trust is destined to be aimed at "managing wealth and preserving the value of assets".

Larry's advice to Mr. Porter was to invest in a trust fund, which focuses on the word "investment" and aims to make a profit; it can also be called a "mutual fund".

At that time, there were no modern open-ended mutual funds, and the investment activities of a few people were limited to buying and selling stocks or bonds themselves. They had no idea of ​​entrusting their money to professionals for management and reinvestment.

Larry's advice to Mr. Porter was to take this opportunity to transition into the investment fund industry.

Of course, there are many types of investment funds, but the most common type seen by later generations is actively managed investment funds that invest in the secondary market.

Larry's advice to Mr. Porter was to start with a private equity fund, with a vague investment direction.

It's somewhat similar to Blackstone in later years, but only in terms of investment type, not corporate structure.

“Mr. Porter, convincing a stranger to entrust their money to you for management is the biggest challenge for ordinary people. But it is your advantage. You have gained the recognition of so many people and are considered professional enough in their eyes, so you should use this powerful lever to move the world.”

Larry concluded.

Mr. Potter fell into deep thought, not yet fully recovered from Larry's advanced concept. After pondering for a long time, he finally asked,

"You mean... I raise the funds, I manage them, and then invest the funds in projects I think will make money! Is that even possible? This isn't the same as Mr. Morgan's trust bank!"

Larry nodded and said, “Traditional trusts are more like one-to-one over-the-counter business, but our trust fund should be one-to-many. We use our expertise to bring in money from people who are unable to manage their own wealth, and then we invest it and charge management fees.”

“But this is unprecedented!” Mr. Potter emphasized.

“Yes! But it’s precisely because it’s unprecedented that you should do it,” Larry suggested.

Mr. Porter fell into deep thought. Larry waited a moment, then continued, "Mr. Porter, think back, didn't most wealthy people not even know how to buy and sell stocks before receiving your guidance? Did they even confuse whether to buy long-term or short-term bonds?"

Mr. Potter nodded slowly in agreement.

Larry continued, “This proves one thing: they need professional assistance. Since you have their trust and approval, you should really take this step and create a mutual fund with a trust investment structure.”

Mr. Potter hesitated for a moment, then said, "The most troublesome thing about something unprecedented is that there is no precedent to follow."

Larry sat up straight and explained further, “But if someone reaches the other side of the river, then your actions have opened up the Red Sea for others, and those who follow will follow in your footsteps. You then become a prophet, don’t you?”

Mr. Porter's eyes widened slightly. He turned to Larry and asked, "You're right, but this idea is very advanced. Could you explain to me in detail how this mutual investment fund you mentioned should operate?"

Larry slowly explained to Mr. Porter the rules and precautions he had seen in his previous life regarding fund operations.

In fund investment, the most important factors are the three parties involved.

Clients who lack financial management and investment skills must find investment experts to manage their finances for them.

And investment experts are fund managers.

But clients are also worried that the investment expert might take their money directly, and what if he runs away with the money?
This necessitates the introduction of a third party mutually agreed upon by both parties, namely a reputable "bank vault".

Customers deposit their money in the bank, which is responsible for safekeeping the assets, processing settlements, verifying accounts, and supervising the "investment expert."
Meanwhile, investment experts can focus on researching investments and strive to help clients earn better returns.

The simple division of labor among the three parties achieves the purpose of checks and balances, which allows clients to entrust their money to fund managers with peace of mind.

This is a win-win-win situation!
At that time, there was no SEC (Securities and Exchange Commission), no Securities Act, and no Investment Company Act; everything depended on contracts and reputation.

Larry advised Mr. Porter to hire the best lawyers to carefully design the trust deed and clearly define the rights of all parties.

At the same time, newly established funds should find a reputable bank to act as a "custodian" to safeguard the funds, which can greatly enhance investors' confidence.

The beginning of the fund era is the biggest "blue ocean" in the financial industry that Larry can imagine, just like Eastman's cameras.

By this time, Wall Street had already done everything that would later become a multi-channel business, but it was missing the final Dragon Ball: the fund industry.

It's unrealistic to expect the public to trust a fund overnight.

So let's start with private equity.

Even for private equity, it's not something anyone can easily raise money for.

But Mr. Porter is different. His high level of professionalism and diligence allowed him to build his own small-scale, trust-based closed-end fund by relying on his personal charm and network of relationships.

Once the wealthy have become accustomed to this fund, it can then be extended to public funds.

This resolves the issue that Mr. Eastman was worried about, because private equity is likely to be exploited by some people with ulterior motives, but private equity funds are not.

Mr. Porter had fully understood Larry's meaning. He leaned back in his chair and kept repeating the words "private equity, investment, fund".

After thinking for a moment, Mr. Potter suddenly sat up straight and said to Larry,
"I can figure out the fundraising; I'll get some big shots I know to lead the investment fund. But what about the custodian bank? Who should we turn to?"

Larry smiled, his eyes radiating confidence.

"Go to JP Morgan. He may not be able to see whether Kodak film has any future investment value, but he will definitely know how vast the future potential of this huge fund industry is!"

(End of this chapter)