100 Years of Mutual Funds

100 Years of Mutual Funds: A Century of Investment Innovation and the Evolution of Technology

On March 21, 1924 – 100 years ago today – MFS created the first open-end mutual fund with redeemable shares, marking the inception of a revolutionary approach to collective investment that would democratize access to the stock markets for individual investors. 


This transformative concept has since undergone a remarkable evolution, shaping the landscape of investment and offering a multitude of opportunities to investors across the globe.

In anticipation of this milestone, the FundGuard team has been thinking – as we are known to do – about the corresponding history of investment accounting technology. While the rise of supporting technology and eventual fund accounting software dates back only as far as the 1960s, it is still a storied history – with the first fund accounting software platforms of note entering the market in earnest around 1980 and ushering in a series of legacy solutions and subsequent workarounds that are now burdening an industry at the cusp of digital transformation. 


But before we digress, let’s dive a bit deeper into the history of the mutual fund industry. 

Can’t wait? Skip ahead to our video:
Sixty Years of Investment Fund Accounting and Technology


1924 – The Birth of a New Era in Investment

The story of open-end mutual funds began in 1924 with the establishment of the Massachusetts Investors Trust in Boston, which introduced the concept of pooling resources from multiple investors to purchase a diversified portfolio of securities, offering investors the flexibility to buy and sell shares at the net asset value (NAV) computed at the end of each trading day. This would enable individual investors to participate in the financial markets with an unparalleled level of diversification and professional management.


1930s to 1950s: Growth and Regulation


The early years of mutual funds were met with enthusiasm, but the stock market crash of 1929 and the ensuing Great Depression brought about a period of skepticism and regulatory scrutiny. The U.S. Securities and Exchange Commission (SEC) was established in 1934, and the Investment Company Act of 1940 set the regulatory framework for mutual funds, requiring standards for disclosure, corporate governance, and fiduciary responsibilities. These regulations initially laid the foundation for the growth and stability of mutual funds, setting the stage for their expansion in the decades to follow.


1960s to 1980s: The Boom of Mutual Funds


The post-World War II era witnessed a booming economy and a burgeoning middle class with disposable income to invest. Mutual funds capitalized on this trend, with the number of funds and assets under management growing exponentially. The 1970s introduced the concept of the money market fund, offering investors higher yields than traditional bank savings accounts, while the 1980s saw the rise of sector funds and international funds, providing investors with more specialized investment options.


1990s to 2000s: The Technological Revolution and Mutual Funds


The advent of the internet and advancements in financial technology in the late 1900s and early 2000s transformed the mutual fund industry. Online trading platforms made it easier for investors to buy and sell fund shares, while the proliferation of financial information on the internet empowered investors to make more informed decisions. The era also saw the rise of index funds and exchange-traded funds (ETFs), which continues today – offering low-cost, passive investment options that challenge traditional actively managed funds.


The Current Landscape and Future Prospects


Today, in spite of headline-making outflows to alternative and private asset classes, mutual funds continue to be a vital part of the global financial system, with trillions of dollars in assets under management worldwide. The industry faces new challenges and opportunities, from navigating low interest rate environments, to incorporating sustainable and responsible investing principles. Technological innovations such as AI-powered advisors and distributed ledger technology promise to further transform the way funds are managed and traded.


Looking ahead, the fundamental principles that led to the creation of the first open-end mutual fund—a desire for diversification, professional management, and accessibility—remain as relevant as ever. As these funds continue to evolve, the industry will undoubtedly find new ways to meet the changing needs and preferences of investors, ensuring that the legacy of that pioneering fund established a century ago continues to shape the future of investment.


60 Years of Technology – A Timeline

Now back to the equally storied but decades younger technology and investment accounting trajectory that rose – slowly but surely – to meet the moment. 


1960s: The World Turns to Computing…

PDP-1, the first interactive mini computer also came to market, along with an abundance of other firsts —first use of robots, first supercomputer, earliest iteration of the Internet (ARPANET).


And while fund accounting systems remained manual, key advancements like dynamic random access memory (DRAM) in 1967 and COBOL programming language in 1959 and 1960 set the stage for later use of computers in accounting processes. 


1970s: Modern Computing is on the Rise


With Intel’s launch of the world’s first dynamic RAM chip and first microprocessor for home computers, modern computing took off. Kenbak-1 – widely considered the world’s first personal computer was released in 1971, followed by C programming language, invented by Dennis M. Ritchie for use in operating systems and mini-computers in 1972.


Then of course came the Apple Computer Company, founded in 1976.


The 1970s also saw general accounting go digital. While not specialized for fund accounting, inventions like Visicalc, the first spreadsheet software, and Peachtree Software, the first accounting software package for personal computers helped pave the way.


1980s: Focus on Data


A new communications protocol was established called Transfer Control Protocol/Internetwork Protocol (TCP/IP) – enabling different computer networks to communicate with each other and giving life to the internet (see the 1990s).


Client-server architecture & relational databases also emerged in the 1980s, allowing for more distributed processing of data and applications and more efficient management of large volumes of banking data. Key milestones included: the release of C++ programming language in 1985, and Oracle (formerly Relational Software, Inc.) launched the first commercially available version of SQL.

(And then forty years later FundGuard’s Product Strategy Director, Peter Muldoon, wrote this article highlighting a few core functional weaknesses of SQL, which can be solved by NoSQL strengths today.)


In the 1980s, mainframes were used to process large volumes of transactions using code written in COBOL, and databases were either hierarchical or network. Also during this time, four new fund accounting software providers entered the market.*


1990s: Internet Enters the Mainstream and Relational Databases Advance


As the Internet became mainstream following its 1993 launch, online banking began to take off. Javascript was invented by Brendan Eich in 1995 and QuickBooks launched in 1998, though with the primary purpose of personal accounting.


The rise of the World Wide Web also led to more advanced relational databases being introduced, along with technologies like messaging middleware enabling different systems to communicate with each other. Messaging integration middleware products focused on providing reliable, scalable, and high-performing mechanisms for connecting systems and applications. 


We saw another five new fund accounting software providers enter the market.* 


Y2K – The ‘Aughts:  A New Century Ushers in the Evolution of Software Development


The Manifesto for Agile Software Development was published in 2001, defining new ways to improve software development processes. Along with these insights, the early 2000s also saw the emergence of service-oriented architecture (SOA) as a model for developers to enable interoperability. Virtualization technologies also became more widespread, allowing for multiple apps and systems to run on one server, and blue-green deployment grew in popularity – leading to new software releases in zero downtime.


Within the financial services industry, service-oriented architecture and web services enabled banks to integrate systems and data with other systems and data sources, forming the very early days of open banking technology. Disaster recovery and business continuity of course became more vital in the wake of the 9/11 attacks and natural disasters.


Fund accounting innovation, on the other hand, began to slow, with only one new fund accounting software provider launching to the market.* This is likely because the “Aughts” saw a shift in fund accounting from innovation to fine-tuning development processes and legacy systems. 


2010s: The Early Union of Finance and Technology 


The 2010s necessitated technology within the financial sector with the rising popularity of cloud computing and increased conversations around open banking. Big data technologies (like Hadoop) and NoSQL databases (like Cassandra) were introduced for storage and analysis of vast amounts of data in real-time.


We also saw messaging systems like Kafka grow in popularity for their real-time data processing capabilities and streaming analytics. The growing sophistication of business continuity gave rise to technologies like active-active and passive-active architectures, and cloud computing provided the ability to store data and run applications on remote servers.


And yet, the tech gap continued to widen in fund accounting. Despite growing adoption of technology in finance, fund accounting technology struggled to keep up. Across the entire decade, not a single new fund accounting software provider* launched to the market – excluding in-house builds, bespoke “single use” asset-class systems or fund accounting data aggregators. 


Until 2018. That is when FundGuard came out of stealth with the industry’s first fully cloud-native, AI-powered. low-touch Contingent NAV solution, creating an entirely new set of possibilities for investment accounting software.


2020s: The New Era of Investment Accounting 


The global lockdown caused by COVID-19 at the start of this century has led to rapid adoption of technologies enabling remote work and digitally-based services.


With cybersecurity security ever on the rise, privacy concerns remain top priorities, with key technologies like homomorphic encryption and differential privacy emerging. 


Kubernetes and containerization technologies have become more popular, allowing for easier deployment and management of applications across different cloud environments. And the trend towards cloud computing and big data continues, with the asset management industry finally moving full steam ahead to adopt these technologies, as well as AI and machine learning  to automate processes and provide more dynamic insights into user and investor behavior.


And with this industry transformation, FundGuard – in partnership with leading financial institutions – has evolved to become the only, fully cloud-native, multi-asset, multi-book investment accounting platform (ABOR, IBOR, CBOR, etc.).


Join the Transformation


FundGuard is transforming back-, middle- and front-office investment operations with our cloud-native, ai-powered, cross-asset, multi-book investment accounting solution – creating unparalleled scalability, cost efficiency and transparency for asset managers and their service providers.


Get in touch to request a demo and learn more.


*In citing the number of fund accounting platforms per century, we chose to consider only those legacy platforms that a) Are still around today b) Were not originally built by fund admins or asset managers as in-house platforms,  c) Are not single-use bespoke asset class specialty platforms and d) Have actual accounting engines vs. just aggregators of accounting data.


VIDEO TIMELINE: Sixty Years of Investment Fund Accounting and Technology