It was at the University of Chicago that Mr. Sinquefield embraced efficient markets theory. "He did have a missionary zeal. For him, the new religion become efficient markets," Mr. Ibbotson said.
Mr. Sinquefield took a senior finance course taught by Eugene F. Fama, perhaps the leading proponent of efficient markets theory. Mr. Sinquefield said he peppered Mr. Fama with so many questions the academic referred him to his two teaching assistants: Mr. Ibbotson and Mr. Booth.
The notion of creating an index fund came from efficient markets theory. That theory says the market incorporates new information so quickly that no investor is likely to consistently outperform other investors.
At American National Bank, Mr. Sinquefield put that theory into practice, getting a muted response from the institutional world, and a better reception from wealthy individual investors.
Wells Fargo Bank was the first manager to offer an index fund, an ill-fated attempt to equal-weight the S&P 500 that experienced problems tracking the index and incurred high transaction costs. In 1973, Wells Fargo sold capitalization-weighted S&P separate accounts, but Mr. Sinquefield was the first to offer commingled funds to both pension funds and individual investors.
The breakthrough in the pension fund market for American National came from Robert Shultz, supervisor of New York Telephone Co.'s $1 billion pension fund. Mr. Shultz became intrigued with modern portfolio theory and index funds, according to "The Money Flood" by Michael J. Clowes, editorial director of Pensions & Investments.
"In July 1975, New York Telephone gave us $40 million, and that was the Good Housekeeping seal," Mr. Sinquefield said in a recent interview. The other Bell subsidiary pension funds noticed, and the money started flowing in.
By the late 1970s, American National successfully launched extended-market index and international equity index funds.