(born 1954) is an American investor,endowment fund manager, and philanthropist. He has been the chief investment officer atYale Universitysince 1985.
Swensen is responsible for managing and investing Yalesendowment assetsandinvestment funds, which total $25.4 billion as of September 2016.1He inventedThe Yale Modelwith Dean Takahashi, an application of themodern portfolio theorycommonly known in the investing world as the Endowment Model. His investing philosophy has been dubbed the Swensen Approach2and is unique in that it stressesallocation of capitalinTreasury inflation protection securities, government bonds, real estate funds,emerging marketstocks, domestic stocks, and developing world international equities.3
His investment success with the Yale Endowment has attracted the notice of Wall Street portfolio managers and other universities. Investment heads from universities such asHarvardMITPrincetonWesleyan, and theUniversity of Pennsylvaniahave adopted his allocation strategies to mixed success. Under Swensens guidance theYale Endowmentsaw an averageannual returnof 11.8 percent from 1999 to 2009.4As of the 2016 fiscal year, Yales endowment had risen by 3.4%, the most out of anyIvy Leagueschool, according toInstitutional Investor.5
Swensen was listed third onaiCIOs 2012, a list of the 100 most influential institutional investors worldwide. In 2008, he was inducted intoInstitutional Investors Alphas Hedge Fund Manager Hall of Fame.6
David F. Swenson was born inRiver Falls, Wisconsin. After graduating from River Falls High School in 1971 Swensen elected to stay in his hometown of River Falls and receive 1975 from theUniversity of Wisconsin-River Fallswhere his father Richard Swensen was a professor. Swensen pursued a PhD ineconomicsat Yale, where he wrote hisdissertation,A Model for the Valuation ofCorporate Bonds.
Swensen began his investment career in the early 1980s, and has since advised theCarnegie Corporation, theNew York Stock Exchange, theHoward Hughes Medical Institute, theCourtauld Institute of Art, theYale-New Haven Hospital, The Investment Fund for Foundations (TIFF), theEdna McConnell Clark Foundation, and the States ofConnecticutandMassachusetts.
Prior to joining Yale in 1985, Swensen spent six years onWall Streetas senior vice president atLehman Brothers,7specializing in the firmsswapactivities, and as an associate incorporate financeforSalomon Brothers, where his work focused on developing new financial technologies. Swensen engineered the first swap transaction according toWhen Genius Failed: The Rise and Fall of Long-Term Capital ManagementbyRoger Lowenstein.
Swensen was tapped to serve as the Yale endowment manager at age 31 in 1985.8As of 2005, the fund has managed annualized returns of 16.1%. He has been called Yales 8 billion dollar man for his attainment of nearly $8 billion for the college endowment from 1985 to 2005.8
In September 2014, Swensen began to move the Yale endowment away from investment in companies that have a large greenhouse footprint, expressing Yales preferences in a letter to the endowments money managers. The letter asked them to consider the effect of their investments on climate change, and to refrain from investing in companies that do not make reasonable efforts to reduce carbon emissions. This method was characterized by Swensen as a more subtle and flexible approach, as opposed to outright divestment.9
Swensen made headlines on March 5, 2018 for arguing with the undergraduate editor-in-chief of theYale Daily News. Swensen called the editor-in-chief a coward for deleting an inaccurate sentence and removing a footnote in an op-ed that he submitted to the paper; his column, which he required to be published unedited, responded to a student teach-in that criticized companies allegedly in the Yale portfolio.10
On January 28, 2009, Swensen and Michael Schmidt, a financial analyst at Yale, published an op-ed piece inThe New York Timesentitled News You Can Endow discussing the idea of newspaper organizations run as non-profits by endowments.11On August 13, 2011, David Swensen published an op-ed in the New York Times entitled The Mutual Fund Merry-Go-Round,12about how the pursuit of profits by the management companies creates a conflict of interest with fiduciary responsibilities to their investors. The advertising of Morningstar ratings leads investors to chase past leaders and roll money out of recently downgraded or poorly rated funds into recently upgraded or highly rated funds. The result is the equivalent of buying high and selling low and results in returns for a typical investor far worse than simply buying-and-holding the funds themselves, especially for highly volatile areas such as technology funds. People would do better to focus on diversification among sectors and asset classes, which are the main determinants of long-term results.
Swensen has been advising the Yale Endowment since 1985, having earned hisPh.Dfrom the school, he coined his investment philosophy The Yale Model.
The Yale Model, sometimes known as theEndowment Model, was developed by David Swensen and Dean Takahashi and is described in Swensens bookPioneering Portfolio Management. It consists broadly of dividing a portfolio into five or six roughly equal parts and investing each in a different asset class. Central in the Yale Model is broad diversification and an equity orientation, avoiding asset classes with low expected returns such asfixed incomeandcommodities.
Particularly revolutionary at the time was his recognition that liquidity is a bad thing to be avoided rather than a good thing to be sought out, since it comes at a heavy price in the shape of lower returns.13The Yale Model is thus characterized by relatively heavy exposure to asset classes such as private equity compared to more traditional portfolios.14
This type of investing allocating only a small amount of traditional U.S. equities and bonds and more toalternative investments is followed by many larger endowments and foundations and is therefore also known as the Endowment Model (of investing).14
After Harvards endowment dropped a record 30% to $26 billion in the year ended June 2009, an 81-page report released in May 2010 found that The endowment model of investing is broken. Whatever long-term gains it may have produced for colleges and universities in the past must now be weighed more fully against its costs to campuses, to communities and to the wider financial system that has come under such severe stress.15In a video interview,Mark W. Yuskofounder of Morgan Creek Capital Management, one of the veterans of the endowment investment model, claims that one year where endowments did not outperform but rather tie everybody else does not break the endowment model. According to Yusko, the endowment model is still the most viable proposition for long-term investors. Investors would also realize that mark-to-market reporting has a bigger impact on reported performance than before.16
Many institutional investors have tried to replicate the Swensen Approach and the Yale Model to fit their hedge funds, pensions funds, and endowments, but have not seen the same results.5
In 2005, Swensen wrote a book calledUnconventional Success,which is an investment guide for the individual investor. The general strategy that he presents can be boiled down to the following three main points of advice:17
The investor should construct a portfolio with money allocated to 6 core asset classes, diversifying among them and biasing toward the equity sections.
The investor should rebalance the portfolio on a regular basis (rebalancingback to the original weightings of the asset classes in the portfolio).
In the absence of confidence in a market-beating strategy, invest in low-costindex fundsandexchange-traded funds. The investor should be very watchful of costs as some indices are poorly constructed and some fund companies charge excessive fees (or generate large tax liabilities).
He slams manymutual fundcompanies for charging excessive fees and not living up to their fiduciary responsibility. He highlights the conflict of interest inherent in the mutual funds, claiming they want high fee, high turnover funds while investors want the opposite.18
Swensen lives inNew Haven, Connecticut. Some Yale alumni had mounted a campaign to name one of two new residential colleges after Swensen19; the two residential colleges were ultimately named after Benjamin Franklin and Pauli Murray.
Swensen teachesendowment managementatYale Collegeand at theYale School of Management. He is a fellow ofBerkeley Collegeand an incorporator of theElizabethan Club.
In February 2009, Swensen was named to a two-year term on PresidentBarack ObamaEconomic Recovery Advisory Board, on which he served from 2009 to 2011.2021
During an interview with Yales international center of finance, he stated that capital markets would be much better off under theGlassSteagall legislation(provisions in thethat limits the interaction between stock activities withincommercialand investment banks). He stated that commercial banking serves a very important, useful function: gathering of deposits and making of loans, and if we define that function very narrowly and regulate it very heavily and required it to maintain a high level of capital then the capital environment would be much safer.18
Swensen has won numerous awards for his investing and management of Yales endowment. In 2012, he won the Yale Medal for outstanding individual service to the University. In 2008, he was awarded the American Academy of Arts & Sciences Fellowship and the year prior, the Morys Cup for conspicuous service to Yale. Also in 2007, he was awarded the Hopkins Medal for commitment, devotion and loyalty toHopkins School. In 2004, he won theInstitutional InvestorAward for Excellence in Investment Management.18
In 2008, he was inducted into Institutional Investors Alphas Hedge Fund Manager Hall of Fame along withAlfred JonesBruce KovnerGeorge SorosJack NashJames SimonsJulian RoberstonKenneth GriffinLeon LevyLouis BaconMichael SteinhardtPaul Tudor JonesSeth KlarmanandSteven A. Cohen.22
List of University of Wisconsin-River Falls people
Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment
Unconventional Success: A Fundamental Approach to Personal Investment
Investment return of 3.4% brings Yale endowment value to $25.4 billion.
David Swensens portfolio (from Unconventional Success) Bogleheads.org.
Inc., Yale Alumni Publications,.Yales $8 Billion Man: Yale Alumni Magazine (Jul/Aug 2005).
Fabrikant, Geraldine (7 September 2014).Yale Fund Takes Aim at Climate Change. The New York Times
Lorin, Janet.Yales David Swensen Gets Into Spat With Student Paper Over Endowment.
News you can endowOp-ed by David Swenson and Michael Schmidt, 1/28/09 p A31 NY edition. Retrieved 2-15-09.
The Mutual Fund Merry-Go-RoundOp-ed by David Swenson, 8/13/11. Retrieved 8/14/11.
Gary Hirst (2013).The International Association of Insurance Supervisors and Insurers that are Too Big to Fail. The Gary Hirst Insurance Blog
Yale Model Definition from Financial Times Lexicon.
Did Big Endowments Make Economic Crisis Worse? onPhilanthropy.
Mark Yusko: The Endowment Model Isnt Broken Aired on May 19, 2010
White House Names Board of Outside Economic ExpertsIrwin, Neil and Michael D. Shear.
Cohen, Simons, 12 Others Enter Hedge Fund Hall
. Institutional Investor. Institutional Investor LLC. 23 September 2008
ECON 252 Lecture 9guest lecture by Swensen at Yale University
:Yale Money Whiz Shares Tips on Growing a Nest Egg (4/3/08)
:Despite Losses, Star Investor Trusts in Stocks (3/4/09)
Wikipedia articles with WorldCat-VIAF identifiers
This page was last edited on 16 June 2019, at 20:47