Chapter 12

David Swensen

Only with confidence created by a strong decision-making process can investors sell mania-induced excess and buy despair-driven value.

—David Swensen

David Swensen is chief investment officer at Yale University’s endowment fund, which is among the largest university endowments in the United States, with assets over $19 billion as of 2011.1 Upon completing his PhD in economics from Yale in 1980, Swensen spent a few years in Wall Street: at Salomon Brothers as an associate in corporate finance developing new financial technologies and at Lehman Brothers as a vice president specializing in swap activities. In 1985, he returned to Yale to run its $1 billion endowment fund at the insistence of James Tobin and William Brainard, his PhD dissertation advisors. Under Swensen’s stewardship, the endowment went on to return over 19 times, and its performance beat institutional fund indices by wide margins. The results take on an extraordinary hue when the spending from the endowment is also factored in: From $45 million in 1985, it reached $987 million in 2011.2 Over the last decade, spending has grown at an annual rate of 11 percent and as of 2011 accounts for 37 percent of the university’s revenues. It was just 10 percent of the university’s revenues when Swensen took control.

The 2009 fiscal year was very rare in that the endowment dropped almost 25 percent. For the same period, global equity markets dropped around 30 percent. The large negative return drew disapproval ...

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