The unsung hero of modern investing spends his days on the sunny vineyards of Sonoma, California—a world away from Wall Street.
John “Mac” McQuown never helmed a big bank, crafted policy from Washington D.C., nor enjoyed name recognition like his kindred spirit Jack Bogle.
But exactly 50 years ago to this day, McQuown and his team of legendary academics created the first-ever index fund—an innovation that would take a sledgehammer to the money-management establishment and evolve into a more than $11 trillion industry.
“It goes without saying that I’m an anarchist,” McQuown, 86, said in an interview.
With his disruptive zeal, the team at Wells Fargo & Co. sought to shake up the investing orthodoxy. The charge: Money managers left to their own devices are typically undiversified, expensive and unfit for purpose.
“In the 50 years since then, we’ve demonstrated that’s right,” said McQuown.
Nobel Winners
He’s quick to share credit for the first fund with others.
The president of Wells Fargo, Ransom Cook, hired him and the bank lavished millions on the endeavor. Meanwhile the theories that underpinned index investing were laid out by academics like Harry Markowitz, William Sharpe and Eugene Fama, many of whom collaborated on the project.
“We had a dozen academics working with us,” McQuown said. “Six of them have Nobel prizes now.”
Yet it was McQuown who had the gumption to harness their groundbreaking ideas in the real world with his financial-engineering acumen.
Wells Fargo used about $6 million from the Samsonite pension pot to create an equal-weight gauge tracking all the shares on the New York Stock Exchange, which back then numbered around 1,500.
It was not a big success, in fact. The complexity and cost of constantly re-weighting the fund’s constituents was a huge drag, and in 1976 the Samsonite product was rolled into another fund that held members of the S&P 500 Index in proportion to their market values.
But the low-key ending to the first-ever fund belied what it set off: Wells Fargo continued to grow its index business as clients staged a revolt against active money managers failing to beat benchmarks.