David Swensen.
Bloomberg
In 2015 Paula Volent, Bowdoin College’s chief investment officer, managed a hefty 14.4% return on the Maine liberal arts college’s then- $1.4 billion endowment. Her portfolio even outperformed that of her legendary mentor, Yale’s David Swensen. Fiercely competitive, Swensen didn’t like to lose, says Volent. But that year he sent her a letter she has since framed and hung in her office. It quotes Leonardo da Vinci: “Poor is the pupil who does not surpass his master.”
Swensen, 67, died yesterday after a nine-year battle with renal cancer. For 36 years, he managed Yale’s endowment, the financial holdings that colleges hope to maximize. When he left a Wall Street job at Salomon Brothers (and took an 80% pay cut) to join Yale in 1985, the Ivy League school’s endowment was invested in the same sorts of assets that all college investment managers chose in those days, plain vanilla stocks and bonds. Swensen forged a new path.
As a Ph.D. student in economics at Yale he had studied under Nobel laureate James Tobin, a proponent of diversified investing. Swensen radically changed the traditional mode of endowment investing, putting money in a broad range of assets, including hedge funds, private equity, venture capital, real estate and natural resources.
“He was a real pioneer,” says Robert Wallace, who worked at Yale under Swensen before taking charge of Stanford’s $30 billion endowment. “He created an intellectual framework that has allowed Yale and other institutions to thrive.”
Under Swensen’s leadership, Yale’s endowment grew from $1.3 billion to $31.2 billion. But his greatest legacy is the dozen-plus people he trained, including Princeton investment head Andrew Golden, MIT’s Seth Alexander and Penn’s Peter Ammon. Known as the “Yale Mafia,” Swensen’s former staffers run some of the best-performing endowments at several of America’s top colleges and philanthropic organizations. Swensen himself chaired the investment committee at the Chan-Zuckerberg Initiative.
He also trained Chinese billionaire Lei Zhang, founder and CEO of investment firm Hillhouse Capital. In addition to mentoring Zhang, Swensen directed Yale’s early $20 million investment in Hillhouse, jump-starting the venture and leading to Zhang’s eventual $3 billion net worth.
In 2018, Swensen was one of the first college endowment managers to invest in a cryptocurrency fund.
A native of Ames, Iowa, he grew up in River Falls, Wisconsin, one of six children whose father Richard was a chemistry professor at the University of Wisconsin. His mother Grace became a Lutheran minister when her children were grown. He earned his undergraduate degree at University of Wisconsin-River Falls.
“A combination of common sense (don’t put all your eggs in one basket) and finance theory (diversification is a free lunch) caused me to improve the diversification of Yale’s portfolio,” he has been quoted as saying. “An understanding of the long-term nature of endowment investing caused me to increase the equity exposure of the fund.”
Stanford’s Wallace says Swensen was driven by a desire to bolster Yale’s fortunes, supporting the university’s academic research and making it possible for low-income students to attend for free. “He wanted to make gazillions of dollars on behalf of a charitable institution he cared deeply about,” says Wallace.
Swensen rejected some investments out of principal. He declined to put money into the hedge fund run by billionaire Steven Cohen, despite its strong track record, because Cohen took 50% of his fund’s profits in fees.
Yale’s endowment did not perform well every year Swensen managed it. In 2009, following the financial crisis of 2008, it lost nearly 25%. But Swensen believed in investing for the long term and that strategy worked. In 2014, Yale’s performance was an industry leader, with a 20.2% return.
In the 10 years that ended June 30, 2020, Yale’s fund had the third-best return among large U.S. university endowments according to Charles Skorina, a headhunter for endowments, foundations and Wall Street firms. The two endowments that topped Yale’s returns, Bowdoin and MIT, are run by Swensen protégés.
