Obituary

A legendary ‘quant’ known as the father of the index fund

William Fouse Quantitative analyst 1928-2019
William Fouse co-founded Mellon Capital Management in 1983
Today, computers are ubiquitous on Wall Street. Few have done more to make this so than William Fouse, one of the finance industry’s original “quants” and an inventor of the index fund.
At Wells Fargo in the 1970s, Fouse, who has died aged 91, was instrumental in launching the first ever passive investment fund, a groundbreaking development that continues to reverberate through the investment industry. The Wells Fargo fund unit that Fouse helped shape, and ultimately lead, is now the crown jewel of BlackRock, the world’s biggest asset manager. He went on to co-found Mellon Capital Management in 1983, which is now a $521bn investment group owned by Bank of New York Mellon.
At the heart of his career was rigorous, dispassionate application of data to the investment process. “Our industry has drifted to a point close to conceptual and logical bankruptcy,” he told a conference in Wells Fargo’s heyday, according to a 1980 article in Institutional Investor, the industry’s bible. “I, for one, cannot be happy as a virtually helpless actor in a theatre of the absurd.”
When it comes to integrating the ideas of academia with the practical realities of managing money, Fouse has few equals, according to Thomas Loeb, his colleague over more than 40 years at Wells Fargo and Mellon. “In the world of investing, I’d say he’s right up there,” he said. “He was a really unusual guy”.
There was little in Fouse’s earlier years that indicated he would go on to be one of the finance industry’s leading quants, before that term for quantitative analysts would even be coined.
William Fouse was born on September 20 1928, and helped pay for degrees in industrial administration and business administration from the University of Kentucky by playing jazz clarinet and saxophone. He joined the trust department of Mellon Bank in Pittsburgh, slowly moving up the ranks to become assistant director of investment research, a “bastion of orthodoxy in its purest form”, according to Peter Bernstein, the financial historian.
Yet despite the impression cut by his chubby figure and drooping moustache, Fouse was no orthodox thinker. He became entranced with the mass of groundbreaking financial research that was coming out of academia at the time, and hired IBM consultants to analyse the stock market and measure the performance of Mellon’s money managers. The results were unnerving.
In early 1970, he therefore pitched the idea of a fund that would merely try to mimic the US stock market to the head of Mellon’s trust department, but the reception was frosty. “He accused me of trying to turn his job into a science,” Fouse recalled to the Financial Times last year. “So I fled.”
He picked up the phone and called an acquaintance, John McQuown, who was working at Wells Fargo, attempting to implement many of the then zany ideas being churned out by an all-star cast of economists, such as Harry Markowitz, Bill Sharpe, Merton Miller and Eugene Fama. The arrival of the affable Kentuckian was fortuitous. Wells Fargo was in discussion with Samsonite’s pension fund about creating something akin to Fouse’s proposal to Mellon. And on July 1 1971, the first passive investment fund went live with $6m — and the era of index funds began in earnest.
An array of other innovative products followed, all based on academic ideas, exhaustive research, computer calculations and systematic implementation rather than gut feeling — presaging the swelling quantitative investing trend now sweeping through markets.
Perhaps nothing sums up Fouse as well as Institutional Investor’s 1980 cover story in which the bespectacled Fouse smilingly embraces a Prime computer. At the time, the Wells Fargo folks were seen as madmen. “It was a hotbed of investment radicalism,” Mr Loeb recalls. “The guild was very unhappy with us when we spoke at conferences.”
Fouse ended up leading the bank’s trust department. But mounting budget battles with the bank led him and Mr Loeb to defect to Mellon and set up Mellon Capital Management in 1983, continuing Fouse’s life-long quest for the optimal way of managing money.
There he remained until retiring in 2014, when he became chairman emeritus. Despite a bevy of accolades, he remained little known outside a narrow group of financial geeks, but he lived to see his beloved computers and scientific approach slowly conquer the business of money management.
“He believed it was about quality not quantity when it came to living,” Mr Loeb said. Luckily, with nine decades of life largely spent reshaping investing for the better, Fouse enjoyed both.
Robin Wigglesworth

‘Our industry has drifted close to conceptual and logical bankruptcy . . . I cannot be happy in a theatre of the absurd’

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