Yale's David Swensen dies aged 67

Swensen worked for Salomon Brothers and Lehman Brothers before returning to Yale, his alma mater, in 1985 to lead the investments office. During his tenure, the endowment grew from $1 billion to $31.2 billion as of June 2020. The 20-year return was 9.9% compared to 6.2% for US equities. The earlier performance – annualized returns stood at 16.1% for 1985-2005 – is all the more striking in that they validated what was then a novel investment style.

Working with Dean Takahashi, Swensen developed a strategy characterized by broad diversification, prioritizing equity-related asset classes over those with lower expected returns like fixed income and commodities, and an appetite for illiquidity.

Turning its long-term focus into an advantage, the Yale endowment built up significant exposure to hedge funds, private equity, and venture capital, relying heavily on third-party managers to deliver alpha. Other endowments ended up doing the same. These three asset classes still account for nearly two-thirds of the portfolio, with allocations of 23.5% apiece to hedge funds and venture capital, and 17.5% to leveraged buyouts.

“David’s ideas reverberated beyond Yale as he revolutionized 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. 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,” said Peter Salovey, president of Yale, in a statement.

In an Asia context, Swensen played a key role in the early development of Hillhouse Capital. Lei Zhang, the firm’s founder attended Yale and worked part-time at the endowment during his studies. The endowment ended up making a $20 million seed investment in Hillhouse, which is now said to have more than $60 billion in assets under management.

Zhang said in a separate statement – currently on the Hillhouse homepage – that he won the internship when desperately looking for a job to cover his second-year tuition. He added that seeding Hillhouse represented a significant leap of faith, given Zhang’s partners did not come from investment backgrounds and none of the founding team had managed investments before.

“I’ve asked David before why it was that he invested in Hillhouse, at the time when surely no other institutional investor would have taken the chance. He said, when you work with the right people, something good is bound to happen. This has become a mantra now at Hillhouse, 'Spend quality time with quality people.' I think this is perhaps the most important lesson there is about investing, and David knew it by heart,” Zhang said.

Swensen also lectured at Yale College and the Yale School of Management. He authored two books on his approach to investment, “Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment” and “Unconventional Success: A Fundamental Approach to Personal Investment.”

Image: Yale University

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