David Swensen (1954-2021): Lessons from an Investing Legend


John Micklitsch, CFA CAIA, Chief Investment Officer

David Swensen, the pioneering leader of the Yale Endowment Fund, died of cancer recently at the age of 67. While Mr. Swensen was not a household name in the same way a Tom Brady or Tiger Woods is, to the investment industry, his stature and impact was the same. Mr. Swensen amassed an enviable track record over his 35-year tenure at the helm of the Yale Endowment. In 1985 the Yale Endowment stood at $1 billion. At the end of 2020 it stood at approximately $35 billion. All the while processing contributions and withdrawals to support the University and its students.

Under Swensen’s leadership, Yale pioneered an approach to investing called the Endowment Model that emphasized riskier but uncorrelated, and frequently less liquid, asset classes that took advantage of the main benefit Yale believed they had as an investor: a long time horizon and a spirit of partnership with their many investment managers. The Endowment Model is not suitable for every investor, but there are several lessons from Swensen’s approach and philosophy that we can learn from. Here are a few.

  • Time is one of the greatest assets an investor has. Time is also the most in-demand commodity in the world. When we are young, we have a lot of time, or human capital as it is referred to, but not a lot of financial capital. As we age, we accumulate more financial capital but lose human capital. Time capital is free, but it is extremely valuable. If we use our time/human capital wisely in our investing journey and in life, the results can be incredibly powerful, as they were for Mr. Swensen and Yale.
  • Mr. Swensen looked beyond traditional asset classes to enhance diversification and return potential. If you think about a portfolio as a collection of return streams, stocks and bonds represent two of the major return streams available to most investors. To the extent an additional, uncorrelated, “alternative” return stream is added to the mix beyond the two-asset class portfolio, it can lower portfolio risk further, depending on its return objective and volatility profile. When overall risk is lowered, it creates more room, relative to the portfolio’s original risk budget for additional, potentially higher-returning, investment strategies. This can result in higher overall risk-adjusted returns. In the current low interest rate environment, this concept is particularly helpful as we look beyond traditional fixed income to alternative strategies to solve for desired return levels while managing portfolio risk.
  • In sports there have been great head coaches that produced family trees of coaching assistants that went on to become head coaches themselves. Bill Walsh, Bill Parcels, Mike Krzyzewski, Pat Summitt, Bill Belichick and Nick Saban, to name a few, all produced prolific coaching family trees. David Swensen had his own coaching tree with numerous employees going on to become heads of other prestigious endowments. Sharing knowledge and experience, like investing itself, is not a zero-sum game.

In closing, it was reported that Mr. Swensen, knowing his time was running short, taught his regular investment class to Yale students and worked in the Yale Endowment office up to his very last day. He was doing exactly what he wanted to be doing; providing another example for us all that high achievement often lies at the intersection of passion, talent, commitment and thinking differently.

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