A consortium of school endowments that invest together has allocated some of its assets to three index funds managed by State Street Boston Corp.

Under an agreement announced this week, the Common Fund is to invest $500 million in three State Street index funds over the next 18 months. The Westport, Conn.-based group manages $17 billion in endowment and pension assets for more than 1,300 colleges, universities, private schools, and foundations.

Index funds strive to match the overall performance of stock or bond markets. The Common Fund selected three State Street portfolios designed to mimic the Standard & Poor's 500, the Morgan Stanley Capital International Europe-Australia-Far East Index, and the Lehman Brothers Aggregate Bond Index.

State Street Global Advisors, the investment arm of the Boston-based bank, manages approximately $120 billion in index funds, according to its president, Timothy B. Harbert.

Mr. Harbert said many State Street institutional clients choose to allocate a portion of their assets to index funds because it is less expensive than using multiple managers. Also, different managers' investments could cancel each other out.

"One is selling Ford and one is buying Ford. Why would you want that?," Mr. Harbert asked.

Because their objectives are clearly spelled out, index funds are managed to tightly adhere to their investment policies. The Common Fund last year was the victim of a rogue trader who hid losses of $138 million in its account.

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