The Investment Company Act of 1940, one of the last pieces of legislation to come out of the New Deal, should be recognized as one of the most important. In the 75 years since President Franklin Roosevelt signed the ICA into law, investment companies have grown enormously under its framework, giving rise to a form of financial intermediation that stands today as one of the most important developments in U.S. and global financial markets in the second half of the 20th century.

At the end of 1940, assets under management in U.S. registered open-end funds were about $450 million, in about 300,000 shareholder accounts. By the end of 2015, assets under management in these funds had reached nearly $16 trillion, in more than 250 million shareholder accounts.

A wide range of factors have had a hand in this remarkable growth— including the ICA’s robust investor protections; pass-through tax treatment established in the Revenue Act of 1936; diversification of risk and professional investment management; and effective administration of the ICA by the SEC. Other major influences include intense competition in the fund marketplace, which has fueled innovation in types of funds, fund structures, and shareholder services; the rise of defined contribution plans and the role of funds as attractive vehicles for long-term retirement saving; demographic trends, particularly the post–World War II baby boom and longer life expectancies; and the generally strong performance of U.S. and global financial markets.

One especially important factor, sometimes overlooked, is the unique system of fund governance outlined in the ICA. Since the ICA was passed, funds have enjoyed a statutory form of governance in which the role of independent directors was important from the outset and has since evolved significantly.

Reaching back before the ICA, fund governance has evolved in three distinct phases:

• Comprehensive fund regulation and its aftermath
• Explosive growth, the 1970 amendments, and the economics of fund investing
• Controversy, scandal, and reform—and their lasting effects

IDC Managing Director Amy Lancelotta, Ropes & Gray's PauIita Pike, and ICI President and CEO Paul Schott Stevens examine these three phases and look at what might lie ahead for fund governance in a piece published recently in the Virginia Law & Business Review. To read the paper, click here.