David F. Swensen

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David F. Swensen has been the Chief Investment Officer at Yale University since 1985. He is responsible for managing and investing the University's endowment assets and investment funds, which total about $22 billion. Realizing an average annual return of 17.8 percent on his investments over the last ten years,[1] Swensen has added more than $16 billion to Yale's coffers, and his consistent track record has attracted the notice of Wall Street portfolio managers.

He is chiefly notable for having invented what has become known as "The Yale Model" which is an application of Modern Portfolio Theory.

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[edit] Biography

After receiving his B.A. and B.S. in 1975 from the University of Wisconsin-River Falls, Swensen pursued a Ph.D. in economics at Yale, where he wrote his dissertation, A Model for the Valuation of Corporate Bonds.

Prior to joining Yale in 1985, Professor Swensen spent six years on Wall Street as senior vice president at Lehman Brothers, specializing in the firm's swap activities, and as an associate in corporate finance for Salomon Brothers, where his work focused on developing new financial technologies. Swensen engineered the first swap transaction according to "When Genius Failed: The Rise and Fall of Long-Term Capital Management" by Roger Lowenstein.

Swensen is a trustee of the Carnegie Institution of Washington and treasurer of the Hopkins Committee of Trustees. He serves as a trustee of TIAA (Teachers Insurance and Annuity Association of America), and a non-executive director of Schroders PLC. He has advised the Carnegie Corporation, the New York Stock Exchange, the Howard Hughes Medical Institute, the Courtauld Institute of Art, the Yale-New Haven Hospital, The Investment Fund for Foundations (TIFF), the Edna McConnell Clark Foundation, and the States of Connecticut and Massachusetts.

At Yale, where he teaches endowment management at Yale College and at the Yale School of Management, he is a fellow of Berkeley College, an incorporator of the Elizabethan Club, and a fellow of the International Center for Finance. Some Yale alumni have mounted a campaign to name one of two new residential colleges after Swensen [2].

[edit] The Yale Model

The Yale Model was developed by David Swensen and Dean Takahashi and is described in Swensen's book Pioneering 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 as fixed income and commodities.

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. The Yale Model is thus characterized by relatively heavy exposure to asset classes such as private equity compared to more traditional portfolios.

[edit] Swensen Alumni

The impact of Swensen's influential work in endowment management extends beyond the walls of Yale. Endowment managers who once worked for Swensen include:

[edit] Unconventional Success

In 2005, Swensen wrote a book called Unconventional 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:

  • The investor should construct a portfolio with his money allocated to 6 core asset classes — diversify among them and have a bias toward the equity sections.
  • The investor should rebalance his portfolio on a regular basis (rebalancing back to the original weightings of the asset classes in the portfolio).
  • In the absence of confidence in a market-beating strategy, invest in low-cost index funds and ETFs. 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 many mutual fund companies 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.

[edit] Bibliography

[edit] Notes

  1. ^ Yale Endowment Grows 28%, Topping $22 Billion, The New York Times September 27, 2007.
  2. ^ Alumni mount campaign for Swensen’s name on new college, The Yale Daily News April 18, 2008.

[edit] External links

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