The economy may be in decline, jobs in peril and house prices plummeting, but the University of Chicago Graduate School of Business has much to smile about following its receipt of the largest single gift ever made to a business school.

The donation, worth some $300m, comes from David Booth, founder and chief executive of investment firm Dimensional Fund Advisors, his wife Suzanne Booth and their family. David Booth received an MBA from Chicago in 1971.

In recognition of the gift, the school will be renamed the University of Chicago Booth School of Business.

Mr Booth recalls that the very first course he took at Chicago was taught by Eugene Fama, “and it was a life-changing event……I remember Professor Fama standing up the first day of class and saying ‘This is the most practical course you will ever take,’ and it turned out to be true. We built Dimensional Fund Advisors around his set of ideas.”

Prof Fama devised the efficient market hypothesis, which says investors in stocks should not be able to beat the market since there is no way for them to know something about a stock that is not already reflected in the stock’s price. Instead, investors are better off buying and holding widely diversified portfolios, or index funds.

Mr Booth founded Dimensional Fund Advisors in 1981 with Chicago classmate Rex Sinquefield, a 1972 MBA. They developed strategies for the firm that were grounded in Prof Fama’s efficient market hypothesis. Dimensional Fund Advisors now manages $120 billion for institutional investors and clients of registered financial advisors. The firm has offices in Austin, Chicago and Santa Monica in the US and in London, Sydney and Vancouver. Several of the Chicago faculty are board members of the firm.

Although the headline $300m is nearly three times the amount given to Stanford University’s Graduate School of Business in 2006 by Philip Knight, founder and chairman of Nike - the previous largest business school gift - the money is not a straight donation of cash in the bank. It is a combination of an up-front payment and a financial interest in a portion of the Booth Family Trust’s shares in Dimensional Holdings, parent company of Dimensional Fund Advisors. The business school will receive an income stream from the shares and the value of the shares if they are sold.

Some business schools have discovered that these share-based arrangements are not always what they seem. In 2004 Georgia Tech had to remove the Dupree name from its headed notepaper as Tom Dupree admitted that he was unable to meet the $25m pledge he had made to the business school in 1996. So too, the Thunderbird school in Arizona had to drop the Garvin name after the $60m promised by benefactor Samuel Garvin did not materialise as expected.

Chicago has already outlined its plans for spending the money, which could include the development of a third overseas campus - it already has campuses in London and Singapore. The school also plans to use the money to attract and retain faculty stars and develop faculty groups in academic areas not normally associated with business schools.

From Stern to Saïd, Kenan to Kellogg and Fuqua to Flagler, business people have always been keen to have their names blazoned across the front doors of business schools. The business school at Chicago will probably also be grateful to Mr Booth, therefore, for having a pronounceable name.

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