William L. Fouse, co-founder and chairman emeritus of Mellon Capital Management, died Oct. 17, company spokeswoman Courtney Woolston said. He was 91.
Considered by many to be the father of the index fund after creating one in 1971 for Samsonite Corp.'s pension fund, Mr. Fouse also was a proponent of applying the ideas of modern portfolio theory to investing, including the efficient market hypothesis and quantitative methods.
Before creating an index fund for Samsonite, Mr. Fouse first tried to develop one in 1969 when he was at Mellon Bank in Pittsburgh.
"I was so convinced there had to be a better way to manage money that I actually formally recommended to the trust investment committee at Mellon Bank that Mellon start an index fund," Mr. Fouse told Pensions & Investments in 1998. But Mellon rejected the idea.
"When I took these ideas to the head of the trust department (Lloyd Peterson) at Mellon in the spring of 1970, I felt like Archimedes," Mr. Fouse said. "I was to be hit over the head with a baseball bat. Lloyd Peterson said: 'Goddammit Fouse, you're trying to turn my business into a science.' "
In 1970, he left Mellon and joined Wells Fargo, where he put his index fund idea to use with Samsonite's pension fund.
In addition to creating the first index fund, Mr. Fouse also created the first tactical asset allocation model in 1972, which shifted money among stocks, bonds and cash. He was also the first to integrate the Dividend Discount Model with the Capital Asset Pricing Model and the first to derive an empirical security market line.
In 1976, he contributed research supplementing CAPM. He demonstrated that liquidity is systematically priced in addition to risk. He received the 1974 Graham and Dodd Scroll and the 1976 Graham and Dodd Award for outstanding contributions to financial research.
In 2010, Mr. Fouse won the Matthew R. McArthur Industry Pioneer Award for outstanding contributions to the profession of investment management consulting, presented by the Investment Management Consultants Association. In the 1999 feature article "Men of the Century," P&I named Mr. Fouse as one of 10 individuals who changed the face of investing.
Mr. Fouse is the author of numerous journal articles, including "Risk and Liquidity" in the Financial Analysts Journal (1976); "Is Beta Phlogiston?" in the Financial Analysts Journal (1974); and "Allocating Assets Across Country Markets" in the Journal of Portfolio Management (1992).