David E. Swensen H’15 died on May 5, 2021 in New Haven, Connecticut.
(The following was published by The Wall Street Journal on May 6, 2021)
David Swensen, Yale Endowment Chief Who Changed the Course of Institutional Investing, Dies at 67
David Swensen, the pioneering Yale University endowment chief who changed the course of institutional investing, died Wednesday evening. He was 67 years old.
His death was announced by Peter Salovey, the president of Yale. Mr. Swensen had undergone years of treatment for cancer.
Mr. Swensen grew Yale’s endowment from $1 billion when he started in 1985 to $31.2 billion in 2020 through an embrace of a diversified investment portfolio.
He inspired a generation of investors with his approach and groomed protégés who went on to run the endowments of major universities and foundations.
He helped transform the business of endowment management from a boring, backwater function to a prestigious and professionalized business.
Mr. Swensen and other rivals also injected a new competitive front in the business of higher education that went beyond varsity sports and pursuing higher rankings. As Yale competed with other endowments for higher investment returns, it contributed to the accumulation of bigger war chests to fund school budgets and ambitious growth plans.
But the rivalry widened the chasm between haves and have-nots in institutions of higher education. As the costs of higher education and student debt ballooned, massive endowments also sparked debate about whether enough of the money was benefiting current generations of students and faculty or should be left to compound over time.
The endowment’s growth under Mr. Swensen made Yale one of the wealthiest schools in the U.S. It went from providing about a 10th of the university’s spending in 1985 to roughly a third of Yale’s operating budget in 2019. It paid for everything from faculty salaries to financial aid for more than half of Yale’s students, and effectively subsidized the cost of tuition at Yale.
“David served our university with distinction. He was an exceptional colleague, a dear friend, and a beloved mentor to many in our community,” Mr. Salovey said in a written statement Thursday.
Former Yale President Richard Levin described Mr. Swensen as the biggest donor to Yale in its history given the endowment’s performance. His influence also reached far beyond the university’s New Haven, Conn., campus.
“David was really about the first to recognize that aggressive diversification, really deep research into managers and patience can pay off,” said Jack Meyer, the former chief of Harvard University’s endowment, who was a close friend and rival of Mr. Swensen’s.
Princeton University’s endowment chief, Andrew Golden, who worked at the Yale Investments Office in the 1980s, told The Wall Street Journal in 2017, “Ninety percent of my good ideas on how to organize the office and develop a culture, I’ve stolen from Yale.”
Mr. Swensen’s record wasn’t free of controversy. He battled activists over their calls for Yale to divest itself from fossil-fuel investments. He advocated for a more nuanced approach where Yale would work with its investment managers to weigh the costs and risks of carbon emissions.
As early as the ’80s, Mr. Swensen and his longtime deputy, Dean Takahashi, espoused the then-radical idea that institutional investors should de-emphasize stocks and bonds. Investors should instead take advantage of their long time horizons to invest in hedge funds, real estate, timber and other alternative investments, the Yale model said.
That framework helped popularize venture capital and private equity, contributing to the shrinking of the public markets reshaping the investment world. One of Mr. Swensen’s books, “Pioneering Portfolio Management,” went on to become a bible for investment management.
David Frederick Swensen was born Jan. 26, 1954, in River Falls, Wis. His mother was a Lutheran minister and his father was a chemistry professor at the University of Wisconsin-River Falls, where Mr. Swensen did his undergraduate studies.
Mr. Swensen had earned a graduate degree from Yale, studying under the economists James Tobin and William Brainard. He returned to work at Yale in the endowment office at age 31, taking an 80% pay cut after a stint on Wall Street at Lehman Brothers and Salomon Brothers.
Tall, lanky and blunt, Mr. Swensen often blasted the excessive costs of the mutual-fund industry and the conflicts of interest on Wall Street. He bashed activist investors as value-destroying and asset-gathering managers as out for themselves.
Mr. Swensen survived his first test in 1988, when Yale’s endowment was down 0.2% while Harvard’s was up 5.7%.
He deftly navigated the technology bubble. He harvested double-digit gains in the late 1990s as the bubble grew and notched a 41% return in 2000—more than triple what endowments on average delivered—the year it burst. Yale’s outperformance was partly because of a large hedge Mr. Swensen had maintained for years to reduce Yale’s tech exposure.
He looked beyond the numbers to incorporate qualitative assessments of investment managers into his decisions.
“I’m an old-fashioned guy that wants to sit across the table from someone that’s done the analysis,” Mr. Swensen said in a 2017 interview on stage at the Council on Foreign Relations. His remarks explained his skepticism of quantitative strategies but also translated to his larger investment philosophy. He said later, “I don’t understand any other way to invest.”
He trained protégés who went on to run the endowments at institutions, including the Massachusetts Institute of Technology, Stanford University, and Bowdoin College to do the same.
His female protégés who ran such endowments outnumbered their male counterparts nine to five as of last year. But the Yale endowment’s investment staff and the managers it invested in remained overwhelmingly white, as at many other institutions. Mr. Swensen in 2020 announced a new diversity push for the investment staffs of both Yale’s money managers and the endowment itself.
Some managers felt he expected special treatment. He walked out of a meeting with the hedge-fund manager Eddie Lampert when he was seeking to raise money in the 2000s because Mr. Lampert wouldn’t discuss his fund’s holdings. A follow-up meeting was more productive, though Yale still didn’t invest.
Mr. Swensen generally viewed his job as supporting Yale’s mission.
“We require complete transparency,” he told the Journal in 2009, adding he knew every position of every hedge fund Yale had money with. “If they won’t trust us with that information, why should we trust them with our money?” he said.
As other institutions adopted the Yale model, Yale found its choice of managers rather than its asset-allocation framework drove gains. Mr. Swensen notched an average return of 13.1% a year at Yale through June 30, 2020, outpacing the 8.8% average annual return of a traditional portfolio with 60% in stocks and 40% in bonds over the same 35-year period, according to Yale. The university said Thursday the endowment’s performance under Mr. Swensen translated to gains of $45.6 billion.
His biggest test came during the financial crisis, when Yale and other schools that adopted the Yale model stumbled. Yale lost nearly 25% in the fiscal year ended mid-2009. It would take five years for the endowment to regain precrisis levels. For Mr. Swensen, the crisis underscored that even investors largely focused on undervalued securities couldn’t ignore systemic risk.
Yale lagged behind some rivals when low interest rates powered a historic bull run in the stock market after the crisis. Some noted that holding index funds would have been more profitable than a portfolio heavy on alternatives.
Mr. Swensen remained confident the value of a diversified portfolio would win out in the long run.
Mr. Swensen defied the odds after his 2012 diagnosis with late-stage renal cancer. Even then, he made it a point to “rebalance” the endowment’s portfolio, or oversee the daily trades that kept it in line with its targeted asset mix. The lifelong Yale booster also continued to teach students and attend campus football games.
On Monday, Messrs. Swensen and Takahashi, who left the endowment in 2019 to focus on climate-change initiatives at Yale, taught the final class of the term for an investment-analysis class they had co-taught for 35 years, Mr. Salovey wrote.
Mr. Swensen is survived by his second wife, former Yale tennis coach Meghan McMahon, and three children.
At the first meeting of the endowment investment committee after his diagnosis, Mr. Swensen told the committee that friends were encouraging him to step down to tick through his bucket list.
He told the committee that helming the endowment was what he wanted to be doing: “This is my bucket list.”
(The following was published by Forbes on May 6, 2021)
Yale Endowment Chief David Swensen Leaves Legacy of Top College Investment Leader
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.