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Yale endowment chief David Swensen dies at 67

David Swensen, chief investment officer of the Yale University Investments Office, speaks at the John C. Bogle Legacy Forum in New York.
David Swensen, chief investment officer of the Yale University Investments Office, speaks at the John C. Bogle Legacy Forum in New York.Peter Foley/Photographer: Peter Foley/Bloomb

(Bloomberg) -- David Swensen, the chief investment officer at Yale University who helped revolutionize how college endowments are managed, has died. He was 67.

Swensen died May 5 after a long battle with cancer, Yale said Thursday in a statement. He had gone on temporary leave from his job in September 2012 to undergo treatment before returning to his duties at Yale.

Swensen managed one of the most-watched and best-performing college endowments for more than three decades. Many of the world’s wealthiest investors sought to replicate his investment model, which favors more illiquid assets such as private equity.

“David served our university with distinction,” Yale President Peter Salovey said in the statement. “He was an exceptional colleague, a dear friend and a beloved mentor to many in our community. Future generations will benefit from his dedication, brilliance and generosity.”

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After arriving from Wall Street in 1985 to manage money for the school in New Haven, Connecticut, Swensen overhauled his alma mater’s endowment, which was largely invested in domestic stocks and bonds. He diversified into private equity, hedge funds and real estate.

While the strategy is now widely accepted, at the time it was novel for a college and produced superior returns against both benchmarks and peers while creating a model for other institutions.

“David’s ideas reverberated beyond Yale as he revolutionized the landscape of institutional investing,” Salovey wrote. “A natural teacher, he prepared a generation of institutional investors who have gone on to lead investment offices at other colleges and universities.”

‘Highest Integrity’

His contributions to institutional investing are without parallel, said Richard Levin, the former Yale president who first met Swensen in the 1970s in the Yale economics department, when Swensen was a doctoral student and Levin an assistant professor.

“Perhaps more impressive than his contributions was his character,” Levin said in a telephone interview. “Self-confident yet selfless, with the highest integrity. His rectitude was astonishing. He devoted himself to the institution that he loved.”Levin, who worked with Swensen on the investment committee and as a tennis doubles partner, said character was an important part of how he selected outside firms that invested Yale’s money.

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“He would never invest with a manager who he didn’t believe to be scrupulously honest and fair-minded,” Levin said. “People who skated close to the line repelled him. The integrity of his partners was very important to him.”

Swensen invested for the long term. The university has been around for 300 years, and he sought to invest to provide resources for another 300, said Charles Ellis, who knew Swensen for decades and served for 17 years as chairman of Yale’s investment committee.

“He arrived in a world that was deeply conventional and no one else could see that conventional way was not right,” Ellis said. “Once you make the commitment to long-term investing, bonds have no place and conventional stocks are OK. Can you do better?”

Top Returns

Yale’s investment office generated annualized returns of 10.9% in the decade through June 2020, the best among all eight Ivy League schools, and 9.9% annually over 20 years. Under his tutelage, it became the world’s third-wealthiest university, with a $31.2 billion endowment as of June 2020.

While his Wall Street career spanned just six years, Swensen would leave a mark. In 1981, while working for Salomon Brothers, he helped develop a so-called currency swap between International Business Machines Corp. and the World Bank, which would serve as a precursor for the emergence of the derivatives market. The following year he was hired by Lehman Brothers as senior vice president of corporate finance, directing its swap-market subsidiary.

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It was Nobel laureate James Tobin, his dissertation adviser, who in 1985 persuaded Swensen to return to New Haven to take over Yale’s endowment, and the university to entrust about $1 billion of assets to a 31-year-old alumnus.

On his 20th anniversary in 2005, he was given a chart showing the $7.8 billion in additional return the endowment generated using his strategy over two decades, ranking it as the biggest financial donation ever in the history of Yale, which was founded in 1701.

Making Mistakes

“Successful investment cultures encourage professionals to find new mistakes to make, instead of simply repeating old mistakes,” Swensen wrote in his 2000 book, “Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment.”

Swensen was born Jan. 26, 1954, in River Falls, Wisconsin, where his father, Richard Swensen, was a dean and chemistry professor at the local campus of the University of Wisconsin. His grandfather was also a chemistry professor. His mother, Grace, became a Lutheran minister after raising six children, and one of his three sisters also became a minister.

Swensen was a fellow of the American Academy of Arts & Sciences and Council on Foreign Relations, and he advised President Barack Obama as a member of the President’s Economic Recovery Advisory Board.

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He had also served as trustee or adviser to several companies, schools, governments and nonprofits, including the Brookings Institution, Cambridge University, the Chan Zuckerberg Initiative, New York Stock Exchange, as well as the states of Connecticut and Massachusetts, according to the statement.

He is survived by his wife, Meghan McMahon, and three children.

(Updates with medical leave in second paragraph, Levin comments starting in eighth paragraph.)

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