214world about which they knew little and to which they had had limited direct exposure. Interaction with the capital market was normally conducted through the agency of a financial institution. The large merchant banks, such as Barings, Kleinworts, Brown Shipley, Morgans, Schroders, Rothchilds and Hambros, were the most ostentatious of these institutions, each with its own long history of financing public loans both inside and outside the empire.131 Yet, by the latter half of the nineteenth century, other institutions, most importantly the commercial banks and insurance companies, had begun to move to the fore. They operated by consolidating the savings of thousands of individuals into a single fund, which they then invested on the behalf of the contributors. The advantage of this arrangement was that it enabled the individual saver to benefit from the higher returns that the financial expertise and experience of the institution could bring. Moreover, when thousands of savers joined together,

130 Adler, British Investment, Chapter 8; Davis and Gallman, Evolving Financial Markets,

p. 332.

131 Kynaston, City of London, Vol. II, p. 9. For an account, for example, of Hambros’ and

Rothchilds’ involvement in the Transvaal government loan of 1891, see pp. 62–4.

215Information and investment both economies of scale and a degree of financial clout were obtained. In normal times, it was a ‘win–win’ situation, for even after the institution had extracted its portion of the capital gain, the contributor was left with a satisfactory return (without actually having to manage their capital personally). At any rate, the amounts of capital available from tapping the savings of the small-scale British investor were more than sufficient to whet the interest of the biggest players in the market. Between 1870 and 1914, for example, Britain’s insurance companies alone invested around £250 million in securities listed on the Stock Exchange.132

Given the prominent place of institutional investors in the capital market, it is worth considering how they made their investment decisions. In particular, did the pattern of their investment mirror that of the elite and other types of investors who have thus far been considered in this chapter? Did they treat colonial securities differently, and how exactly did they manage their investment portfolios? The next section looks to the experiences of two of the most important institutional investors in later Victorian and Edwardian Britain – the commercial banks and insurance companies – for answers.

Commercial banks From the early nineteenth century, Britain’s joint stock banks asserted a right to operate an investment portfolio; by 1903, around £145 million was held in such accounts.133 These investment portfolios served a dual function as both a reserve fund and as an income-earning asset for the bank. Until the turn of the twentieth century, however, the reserve func-