In Honor of David Swensen: A Tribute from the CFA Institute Enterprising Investor

Key Points:

• David Swensen revolutionized institutional investing by pioneering the endowment model.
• He emphasized the importance of investing in a diverse range of assets beyond publicly traded securities.
• Swensen’s approach focused on identifying, assessing, and developing talented individuals.
• His book, Pioneering Portfolio Management, became a manual for institutional investors seeking to improve performance.
• Swensen’s legacy is seen in the continued success of his protégés who now lead prominent investment offices.

“David was, simply, the best at what he did. He was to endowments what Jack Bogle was to funds — none better as a person or professional.” — Steven M. Galbraith

David Swensen, who passed away last week, was among the most influential investors of his generation. As chief investment officer at Yale, Swensen revolutionized institutional investing with his pioneering endowment model. He diversified Yale’s investments across a wide range of assets, including natural resource funds, private equity, venture capital, and absolute return strategies. This approach highlighted the opportunities available in less-efficient markets.

Swensen’s investment philosophy was fundamentally humanistic. He believed that investment management was as much about people as it was about statistics. This focus on identifying, assessing, hiring, and developing talented individuals became one of Swensen’s lasting legacies.

“He showed that there was a way to compete hard and well in financial markets . . . but to have our lives be about something that mattered more.” — Andrew K. Golden

In 2000, Swensen published his book, Pioneering Portfolio Management, which coincided with a shift in institutional asset management towards active investment strategies. Leading university endowments, including Yale, Harvard, Stanford, and Princeton, began adopting Swensen’s approach. His book became a manual for institutional investors looking to improve their performance.

Swensen’s investment strategy initially seemed risky, as there was limited data on the performance of non-marketable assets. However, Yale’s success proved the concept and paved the way for other institutions to follow suit.

The key maxims outlined in Pioneering Portfolio Management were straightforward: Equity generates superior long-term returns, diversification extends beyond publicly traded securities, active managers can add value in inefficient markets, and patience is a relative advantage. However, implementing these maxims was not easy.

Swensen and his collaborator Dean Takahashi developed a process that emphasized understanding human potential, motivation, intelligence, character, and integrity. They looked beyond the numbers to evaluate the role that investments played in managers’ lives and ambitions.

“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.” — Ted Seides, CFA

In addition to his investment expertise, Swensen was a dedicated educator. He and Takahashi taught an investment course at Yale, where they evaluated managers based on their individual skills, concerns, and interests. This course also served as an opportunity for Swensen and Takahashi to identify talent for the Yale Investment Office.

Many of Swensen’s protégés have gone on to lead prominent investment offices, managing endowments for various institutions, including Princeton, MIT, the Rockefeller Foundation, and several universities and foundations.

Swensen’s impact extended beyond his investment philosophy. He immersed himself in the university community, teaching, mentoring, and interacting with faculty and students. His success at Yale inspired further research into alternative assets and investment management practice.

“He has never had any interest in doing anything but running the endowment as well as he could . . . He has a passion for giving back to an institution with a higher purpose. He never aspired to more money or a higher position.” — Stephen Swensen

Swensen’s commitment to socially responsible investing was also evident in his work on Yale’s investment policies. He believed in the mission of the university and the idea of investment with a purpose. His perseverance and dedication to Yale were admirable, especially considering his personal health struggles.

With the passing of David Swensen, the financial community has lost one of the most influential investors of modern times. His approach to investing and his emphasis on people will continue to inspire investment professionals for years to come.

Further Reading on David Swensen and the Endowment Model from CFA Institute

If you liked this post, don’t forget to subscribe to the Enterprising Investor.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: Courtesy of Yale University/ Michael Marsland

Professional Learning for CFA Institute Members

CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker.