In David Booth's retelling of his own story, he is an example of how the geeks shall inherit the earth.

Mr Booth made history in November when the University of Chicago's Graduate School of Business announced he and his family were giving it $300m — the largest donation ever made to a business school — and that in recognition of the gift, it was changing its name to Chicago Booth.

The founder and chief executive of Dimensional Fund Advisors, an investment firm with $120bn under management, Mr Booth, now 61, arrived in Chicago in 1969. "They plucked me out of Kansas, where the opportunities were few," he chuckles.

The two years he spent at the university were formative, providing him with his investment philosophy. "In the late 1960s, the prevailing view of business education was that you needed to teach case studies," he says.

"But at Chicago, they said you should also study theory, model-building and quantitative techniques. At that time, a lot of people pooh-poohed that and said: 'That's just ivory tower stuff, it'll never be practical'. So to see us implementing these ideas was very exciting to these professors. For a long time, people viewed us as just a bunch of geeks, but over the long haul, it worked."

The biggest influence on Mr Booth at Chicago was Eugene Fama, a legendary professor of finance who taught him at the first class he attended in 1969. Prof Fama says he recognised Mr Booth as the brightest student in his class and made him his research and teaching assistant.

Mr Booth had originally signed up for a PhD, but decided after two years at Chicago that the academic life was not for him. Prof Fama helped him find a job with Wells Fargo, where he gained his first experience of working with index funds.

In 1981, Mr Booth formed Dimensional with Rex Sinquefield, a former classmate in Chicago. The firm's investment strategy was an exact mirror of the ideas the two had learned from Prof Fama, whose efficient market hypothesis holds that stock investors should not be able to beat the market, since share prices reflect all known information. Instead, they should build diversified portfolios — the idea behind index funds.

"I remember Prof 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," he says.

Whereas the index funds that had become popular in the 1970s were nearly all based on the S&P 500, Dimensional created the first small-companies fund. "There was an obvious need for institutional investors to get access to stock in smaller companies," says Mr Booth.

He notes the connection with the University of Chicago GSB and its faculty was critical to attract institutional investors in the early days.

"Our first office was my apartment and the first trading room was my spare bedroom. We started on a shoestring, but having access to the best minds, knowing that regardless of what kind of competition you had from large institutions, nothing could come up that we couldn't handle — that was incredibly valuable."

"We traded on the name, basically. We said: 'Here are the people associated with us, here are our mutual-fund directors — people like [Nobel laureates] Merton Miller, Myron Scholes and Robert Merton'. It was an impressive list of characters."

Aside from Prof Fama's theoretical framework and his abiding role as an adviser to the company, Dimensional always retained strong links with GSB faculty, several of whom sit on its advisory board.

For that reason, Mr Booth says he looked at the donation less as a gift than a dividend. "I asked: 'What's fair to the university? What's fair to pay a partner? What's a partnership distribution? They've been my partners all along, now it's time to pay back, so what's their share?' So I put together a fair deal. I wouldn't say it's generous. I'd say it's fair."

That attitude is typical of the donor's low-key approach. "I am still a little surprised that he stepped forward to do this because he is so quiet and very much a Midwestern guy from Kansas," says Edward Snyder, dean of Chicago Booth. "He doesn't enjoy the spotlight and always gives credit to others. On the ego-meter, he doesn't ring the bell."

The donation is made up of a cash component and an equity stake in Dimensional, which provides a revenue stream. So will it reflect the performance of the faculty who sit on the company's board? Prof Fama laughs at the suggestion. "The company's not going to rise or fall based on what I do," he says.

At a time when university endowments are suffering, the Booth gift should enable Chicago to jump up the rankings. "From a resource point of view we have been punching above our weight," says Dean Snyder. "In terms of endowment, we lagged some of our toughest competitors — Harvard, Stanford and Wharton — and this gift will help us a lot."

Dean Snyder says he aims to use the funds to attract and retain star talent, suggesting that he will be looking to poach faculty — particularly in marketing — at a time when competitors may be hurting financially. He also wants to develop a website for promoting faculty research and real-time commentary on business issues and to expand the school's international presence beyond London and Singapore.

As for Mr Booth, he considers himself lucky to have been able to give something back. "In a Faustian pact, you can do well by dealing with the Devil," he says. "Well, we don't have a term in English for a pact where you can do well by doing good.

"If somebody had come to me as a young man and said: 'Here's the deal, here's your future. You'll have a great life, implementing ideas you can truly believe in that will enable people to retire early and have better structured portfolios and you get to hang out with really bright professors at the University of Chicago — and the deal is that at some time we want a big chunk of that back' — well, who wouldn't have taken that?"