“David, he was just the best at what he did. What he donated to Jack Bugle’s fund – nothing better than that as a person or as a professional. – Steven M. Galbraith
David Swansen, who died last week, was one of the most influential investors of his generation. As Yale’s chief investment officer, Swensen pioneered the endowment model and changed the way an organization invests, moving from a narrow focus on their marketable securities to a wide variety of unusual assets, including natural resource funds, private equity, and venture capital. And the strategy of absolute return. He showed that these low-skilled markets offer opportunities for smart investors.
As a result, Swansen’s vision was fundamentally humanistic: it focused on identifying, evaluating, recruiting, and developing talented individuals. As much insight into people managing investment as statistics will be one of Swensen’s legacies.
“He showed that there was a way to compete hard and well in the financial markets … but our lives have to be something that is more important.” – Andrew K. Golden
Published his book Leading portfolio management The turn of the millennium in 2000 and the shift away from passive investment management led to changes in institutional resource management efforts. Yale, Harvard, Stanford and Princeton – this change was led by a handful of top university donations. Leading portfolio management Became a manual for institutional investors looking to improve performance immediately.
At first, Swansen’s expedition to the alternative seemed risky. There was very little reliable information about the performance of non-salable assets and this uncertainty hindered the path of many institutional managers. Yale’s success was an important proof of the concept, and allowed many others to follow.
Swansen has revealed the key maximum Leading portfolio management: Equity generates higher returns in the long run, requires investment outside of publicly traded securities in a well-diversified portfolio, some active managers can add value to less efficient markets, and patient investors have relative advantages. While these maxims are straightforward, their implementation is not.
Swansen and his longtime colleague Dean Takahashi created a process that deeply realizes and appreciates human potential, motivation, intelligence, character and honesty. Yale approaches look beyond the numbers at things that play a role in the life and ambitions of their business managers.
“David was my first and greatest mentor and was like any other father to me … I caught every word he said about investing and life. – Ted Seeds, CFA
Swansen was also a dedicated educator. He and Takahashi regularly teach an investment course at Yale. Their students have learned how to evaluate managers as people of personal skill, concern and interest. The course also gave the duo the opportunity to evaluate the talents of the Yale Investment Office.
Prominent “alumni” of the Yale Investment Office, many of whom are graduates of Yale College and Yale School of Management, have inherited Swensen as a leader in the practice of investment management. The Yale Investment Office’s 2020 annual report lists some of Swansen’s notable characters. They have conducted at Princeton, MIT, University of Pennsylvania, The Rockefeller Foundation, Rainwater Charitable Foundation, Wesleyan University, Smith College, The Kaufman Foundation, The Metropolitan Museum of Art, Packard Foundation, New York, Picard Foundation, , And Mount Holyoke College, among other institutions.
Swensen immersed himself in the life of the university and its community through interactions with teaching, mentors and faculty and students. I had the opportunity to get to know him most of his time at Yale and co-educate with him at an event. Swansen’s success in building Yale’s portfolio of alternative resource classes and the stability of active managers, my personal curiosity and academic research are encouraged in alternative assets. No doubt he will have a lasting impact on investment management practices and research.
“He never showed interest in doing anything but ran the endowment as much as possible. . . He has a passion for giving back to an organization with a higher purpose. He never wished for more money or more. – Stephen Swansen
I was honored to work with him on Yale’s policy on socially responsible investing. He was deeply committed to the university’s mission and the concept of investing with a purpose. I deeply appreciate his perseverance and courage through his personal health struggles and appreciate how much he has given to Yale.
With the death of David Swansen, the financial community has lost one of the most important investors of modern times. His example will inspire investment professionals for next year.
Read more about the endowment model from David Swansen and the CFA Institute
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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.
Image Credit: Courtesy of Yale University / Michael Marsland
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