David Swensen, the head of Yale University’s endowment who helped reshape how institutions manage their money, has died from cancer aged 67.
After stints at Salomon Brothers and Lehman Brothers — where he worked on the first-ever interest rate swap between the World Bank and IBM — Swensen returned to his alma mater in 1985 to lead its investment office.
At the time, endowments were typically conservatively managed, and had plenty of money in a portfolio of solid government and corporate bonds, and often little invested overseas. Endowment boards and investment offices were typically sleepy affairs and old boys’ networks. Swensen started a revolution.
Although new to the investment industry, Swensen overhauled the investment model, taking advantage of an endowment’s long-term focus to invest far more aggressively in more volatile but higher-returning stocks. He also became an influential investor in the nascent private equity, venture capital and hedge fund industries, at a time when they relied on wealthy individuals to raise money.
Swensen’s approach was so successful it revolutionised how endowments and many other institutional investors allocated their money, and the “Yale model” spread.
“The really great painters are the ones that change how other people paint, like Picasso. David Swensen changed how everyone who is serious about investing thinks about investing,” said Charles Ellis, the former chair of Yale’s endowment.
The Yale Investments Office managed $31.2bn as of June 2020, and said it had averaged annual returns of 12.4 per cent a year over the past three decades. In the 2021 fiscal year its contributions accounted for more than a third of the university’s overall revenues, underscoring its importance to Yale at a time when many educational institutions have been crippled by the Covid-19 crisis.
“With his guidance, Yale’s endowment yielded returns that established him as a legend among institutional investors,” said Peter Salovey, Yale’s president, in a statement. “David’s ideas reverberated beyond Yale as he revolutionised the landscape of institutional investing. His approach, which has become known as the ‘Yale model,’ is now the standard for many university and foundation endowments.”
Almost a quarter of the endowment is invested in venture capital, and combined with private equity, hedge funds and real estate, so-called alternative investments account for almost three-quarters of its assets. Bonds and US stocks — once the mainstay of endowments like Yale’s before the arrival of Swensen — make up less than 10 per cent.
In addition to inspiring a tectonic shift in how many institutions manage their money — his book Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment is a mainstay of the library of chief investment officers everywhere — Swensen earned a reputation as a great spotter and nurturer of investment talent.
In many respects, Yale under Swensen became in endowments what Julian Robertson’s Tiger Management has been to hedge funds — places that have developed a large number of prominent figures in their respective industries.
“A natural teacher, he prepared a generation of institutional investors who have gone on to lead investment offices at other colleges and universities, further extending the scope of David’s influence,” Salovey said.
Among the many Yale endowment alumni are MIT’s Seth Alexander, Princeton’s Andrew Golden and Lei Zhang, the founder of the Asian private equity giant Hillhouse Capital Group.
In addition to running Yale’s endowment since 1985, Swensen solidified his position as one of the investment industry’s leading lights by advising or serving as a trustee on organisations such as the Brookings Institution, Cambridge university, the Chan Zuckerberg Initiative, the New York Stock Exchange and the states of Connecticut and Massachusetts.
“He was just an incredibly wise man,” said Ted Seides, a former colleague of Swensen. “He was the greatest in the industry and he has been for many years.”
Richard Haass, of the Council on Foreign Relations, where Swensen was a member, paid respects to someone whose human qualities rivalled his professional ones, friends said.
“David revolutionised endowment investing, but less well-known is that he was truly wise, generous, fair, gentle, and decent, a man of rare grace and principle who loved his family, Yale, friends, colleagues, & life itself,” Haass wrote on Twitter.