Yale’s Swensen Leaves Legacy of Proteges Across Investing

(Bloomberg) -- Before David Swensen started working at Yale in 1985, its portfolio consisted mostly of plain-vanilla stocks and bonds. By diversifying into private equity, hedge funds and real estate, he put the endowment on a new trajectory, ultimately changing how universities and other institutional investors manage their money.

Swensen, who died Wednesday of cancer at 67, managed Yale’s fund for more than half his lifetime. Valued at $31.2 billion, it’s the second-richest private-college endowment, after Harvard.

Yale had been around for 300 years, and Swensen, as chief investment officer, saw his mission as providing funding for the university for another three centuries, said his longtime friend and a former chairman of the Yale investment committee, Charles Ellis.

“Once you make the commitment to long-term investing, bonds have no place and conventional stocks are OK,” Ellis said in an interview. “Can you do better?”

Swensen did, leaning on outside firms with new investment strategies, adding timber and, especially, investments in early stage companies through venture capital firms.

Yale was a pioneer among large investors betting on startups, making its first commitment in 1976 and eventually counting Andreessen Horowitz, Benchmark and Greylock Partners among its managers. Yale’s $2.7 million bet on LinkedIn generated $84.4 million of gains after the social network for business went public in 2011.

Venture remained the endowment’s largest allocation at 22.6%, according to the school’s latest figures from June 2020. That was followed by hedge funds at 21.6%.

One of Swensen’s greatest legacies, though, was training proteges who left the Yale endowment to manage money at other leading institutions, including Andrew Golden at Princeton University, Seth Alexander at the Massachusetts Institute of Technology and Paula Volent at Bowdoin College. Yale and some endowments would also invest together with outside managers.

Here’s what they and others said about how Swensen will be remembered:

Joel Cutler, co-founder of General Catalyst

“David was gifted in so many ways. He created an asset class. His work powered the endowment and foundation model in a way that created immeasurable good in our world. On a personal note, our firm would never have flourished in the early years without David. He was a mentor, a friend, a supporter and a tough critic.”

“He gave us his everything as a supporter and friend. He helped shape our culture and values -- and helped us understand that working on behalf of amazing, nonprofit investor institutions would help make us a great, enduring firm with a deep sense of purpose.”

“His legacy of excellence will power so many scholarships, world-class researchers, free speech, wildly innovative thinking, support for essential workers and the like.”

Andrew Golden, president of Princeton University Investment Co.

“To state only the obvious -- he revolutionized our industry -- is to use too narrow an aperture. His impact on how capital is allocated contributed to our entire innovation economy.”

“Like many others, I would not have even chosen the career I did, let alone have been positioned for success in it, but for David F. Swensen.”

“In my first very brief meeting with Dave, I was stunned that someone so young looking was in his position. In my first real discussion with Dave, I was stunned, as I would be again and again over the years, by his incredible analytic mind and his economic, high-precision communication.”

Nancy Zimmerman, co-founder and managing partner of Bracebridge Capital

“David’s presence always elevated the level of discourse. His investment process demanded a thoroughness that has underpinned the success of Yale Investments Office and extended to his proteges at other endowments.”

“This process grew out of a culture based in intentionality and authenticity, an understanding that everyone in the room has something to contribute to the discussion, and his belief that people are the most important investment of all. These qualities also made him a true ally to women, helping them cultivate their talents across the industry and the university.”

Burton Malkiel, professor emeritus of economics at Princeton University and author of ‘A Random Walk Down Wall Street’

“What we know about financial markets is you get paid for bearing illiquidity. David’s insight is that a university like Yale can have a substantial part of its portfolio in real estate investments, in venture capital.”

“He’s had an outsize influence on how endowments are managed. Everybody who runs an endowment knows Swensen’s books. The people who worked for him and learned from him now run a lot of the major endowments in the country.”

“I got to know him when I was dean at the Yale School of Management. I remember we would have lunch at Mory’s. He was a Ph.D. in economics -- there are people who know the theory but don’t know the practice, there are people who know the practice but don’t know the theory, and he was someone who knew both.”

“He was a marvelous person. He was extremely warm, just the opposite of what you might think of as the typical hedge fund manager.”

Lei Zhang, founder of Hillhouse Capital Management and a Yale trustee

“David was my first teacher in the discipline of investing. He taught me what it meant to be a fiduciary, to be truly long term and to build an organization with a soul.”

“My initial project for David was to translate his book, ‘Pioneering Portfolio Management.’ David has an expansive vocabulary, and this was a tough task (for example, try translating ‘eleemosynary’ into any language). One concept in the book I encountered for the first time was ‘fiduciary.’ There was no satisfactory translation I could find at the time, so I did my best to put together the correct words to express this idea. It was important to get this right because fiduciary responsibility was a principle that guided many of David’s decisions.”

“David loved Yale, and he loved the mission of higher education. He believed that education transformed lives, and that he was living proof. Even if he didn’t tell you about this passion of his, you could probably guess it from the endless rotation of ‘Yale’-emblazoned fleece vests that, along with khakis, constituted his unofficial work uniform. David was extraordinarily proud that the work he and his colleagues did enabled the university to support cutting-edge research and attract the best and brightest talent, regardless of financial circumstance.”

Seth Alexander, president of MIT Investment Management Co.

“David was a remarkable teacher and mentor from the first time I met him as an undergraduate. I knew nothing about the endowment industry, but I knew I wanted to go work for him. I think he influenced so many people because he was doing something he loved, doing it better than anyone else. He dedicated decades of effort to it, and he did it on behalf of a great cause.”

Tom Steyer, founder of NextGen America and Farallon Capital Management

“Dave revolutionized institutional investing. Dave supported new, unconventional ideas, and his support meant a domino effect. This was true for me and many other young investors. He stayed at Yale all these years when he could have gone literally anywhere because he was above genius, above brilliance, above ambition, Dave was a man committed to his values.”

John Taft, vice chairman of Robert W. Baird & Co.

“David Swensen was one of the most influential and innovative financial professionals of our lifetimes. His 2000 book, ‘Pioneering Portfolio Management,’ is a classic in the asset-management industry and sits on my bookshelf yet today. He is known for his unconventional approach to asset allocation -- investing a much larger share of portfolio assets in alternative strategies than was generally accepted practice.”

“But we should perhaps appreciate two of his other contributions even more: First, his nuanced understanding of the need to align investment policy with the spending policies and operating needs of endowed organizations. Second, his ability to identify and get access to the best money managers in the world, demonstrating that, for any given investment strategy, the dispersion between returns generated by the best and worst managers can be a significant source of added value.”

Paula Volent, chief investment officer of Bowdoin College

“My work with David changed my life. With an initial goal of getting my MBA at Yale School of Management to pivot from art conservation to museum director, I knocked on David’s door after my first semester at Yale after the birth of my daughter. Although my resume had no investment experience, David took a chance on me and I started working part time at the investment office.”

“I continued through my time at SOM and stayed on post-graduation to assist David with the writing of ‘Pioneering Portfolio Management.’ The opportunity to sit with David and help write about his developing investment philosophy, which embraced alternatives, principal-led investment firms and the importance of endowment to institutional excellence, was amazing.”

Bill Ford, chairman and chief executive officer of General Atlantic

“He was a pioneer and innovator in institutional investing -- and also a wonderful man. When I first became chairman of the Amherst College Investment Committee, one of my first phone calls was to David, who had profoundly shaped my thinking about endowment management.”

“‘Pioneering Portfolio Management’ was an important read for me. His investing brilliance is reflected in the current models of many university endowments, which were inspired by David’s approach, perform well relative to other strategies and ultimately generate meaningful resources for leading colleges, universities and foundations -- for the benefit of students and so many others.”

Bill Helman, partner at Greylock Partners

“David was a transformative influence on everything he touched: higher education, endowment models, alternative assets, manager selection and startups. In every instance he was the leader, the original thinker, and so many of us benefited in substantial ways. Most importantly, he defined what it meant to be a partner, always acting with respect, intelligence, affection, friendship, loyalty and a great sense of humor.”

Jim Bailey, co-founder of Cambridge Associates

“David Swensen was an extraordinary person. He was bold during a time when institutions still looked at investments from a simplified portfolio perspective, and he was a leader in making endowment management a meaningful career for many. Most importantly, his work materially improved investment results. He was a wonderful friend, a brilliantly intellectual person, and it was an adventure as we worked to change how endowments were managed. I will miss him dearly.”

Ted Seides, founder and host of Capital Allocators LLC

“David was my first and greatest mentor, and was like another father to me. I clung to every word he said about investing and life. As much as the community has a sense of his greatness as an investor, he was even better than most realize. He had all the characteristics and skills of the greatest investors of our time -- wisdom, innovation, irreverence and purpose. He invested in money, invested more deeply in people and had an uncanny ability to be right about both. It’s an incredibly sad day.”

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