David F. Swensen, the longtime chief investment officer of Yale University known for his pioneering investment approach who inspired a generation of investment leaders, died May 5 after a nine-year battle with cancer. He was 67.
Mr. Swensen was credited with developing the "Yale model" of investing, which moved away from traditional stocks and bonds and into more illiquid assets like private equity, hedge funds and venture capital. This became the standard for many universities and endowments.
"David served our university with distinction. He was an exceptional colleague, a dear friend, and a beloved mentor to many in our community," wrote Yale President Peter Salovey in a letter posted on the New Haven, Conn.-based university's website. "Future generations will benefit from his dedication, brilliance, and generosity."
Mr. Swensen made the endowment less liquid — a groundbreaking move, it turned out — because he believed that alternative investments offered inefficiencies and therefore potential returns not found in the public securities markets. He thought that institutions were in a unique position to buy less-liquid securities at a much lower cost than public stocks and bonds, and often with less risk.
"You can be paid for accepting illiquidity. The markets overvalue liquidity to a degree that's hard to understand," Mr. Swensen had said at a conference sponsored by publisher James Grant in 1996, adding that the portfolio had "achieved true diversification."
After receiving his doctorate in economics from Yale in 1980, Mr. Swensen worked for Salomon Brothers and Lehman Brothers before returning to his alma mater to lead its investments office in 1985. When he took the reins of the university's endowment, it had $1.3 billion in assets. Now, it stands at $31.2 billion.
Under Mr. Swensen's leadership, Yale's endowment posted a net return of 6.8% for the fiscal year ended June 30. For the 10 and 20 years ended June 30, the endowment returned annualized net returns of 10.9% and 9.9%, respectively. Over the course of his entire tenure, the endowment posted an annualized net return of 13.1% through June 30. By comparison, the average annual return for U.S. educational endowments was 1.8% in fiscal year 2020, according to the 2020 NACUBO-TIAA Study of Endowments. Long term, endowments saw average annualized returns of 7.5% and 5.5% for the 10 and 20 years ended June 30, respectively.
Colleagues who had worked for Mr. Swensen mourned the loss of their mentor and remembered his friendship, guidance and impact on not just the industry, but their careers.
"David was a remarkable teacher and mentor from the first time I met him as an undergraduate. I knew nothing about the endowment industry, but I knew I wanted to go work for him," said Seth Alexander, president of Massachusetts Institute of Technology Investment Management Co., which manages the Cambridge-based school's $18.4 billion endowment, in an email.
Mr. Alexander, who worked at Yale's investment office for more than 10 years before moving over to MIT's endowment in May 2006, added: "David did not just lead the endowment industry, he transformed it. He remade the way all of us invest."
"I think he influenced so many people because he was doing something he loved, doing it better than anyone else, he dedicated decades of effort to it, and he did it on behalf of a great cause," Mr. Alexander said.
Andrew K. Golden, president of Princeton University Investment Co., which manages the New Jersey-based university's $26.6 billion endowment, said in a phone interview that Mr. Swensen "was a big part of the reason why (he) chose this career." Mr. Golden worked at the Yale investment office when he was working to get his master's degree, starting as an intern before becoming a senior associate.
"Dave was revolutionizing the way endowment investing gets done," Mr. Golden said. "He taught me how to think clearly and how to have confidence in that clear thought in the face of conventional wisdom. He will be deeply missed."
Mr. Golden added: "He's got a long list of people he's impacted. What he did for the endowment management world and the investment world is obvious, but the extension of that revolution had a broad impact in our economy. The venture capital industry owes a lot for Dave's endorsement and investment."
Paula J. Volent, CIO at Bowdoin College, agreed that Mr. Swensen "was instrumental in changing many of our lives."
"He had an uncanny ability to identify investment talent and backed many investors who would later become household names in the industry," she said.
Ms. Volent, who oversees the Brunswick, Maine-based college's $1.8 billion endowment, described Mr. Swensen as "a true pioneer in investment management as well as an amazing mentor, teacher and friend." She was once a senior associate at Yale's investment office.
Bowdoin's CIO also noted that Mr. Swensen "loved to teach" and "was generous with his time and took great pride in watching many of us take the Yale investment strategy" to other institutions.
"He will be sorely missed," she said.
Mr. Swensen also lectured at Yale's undergraduate college and the School of Management. On May 3, he and Dean Takahashi, his longtime friend and former senior director at Yale University's investment office, taught the last class of the term for Investment Analysis, a seminar they taught for 35 years.
Mr. Swensen was also a fellow of the American Academy of Arts and Sciences, a member of the Council on Foreign Relations and a member of President Barack Obama's Economic Recovery Advisory Board. He served as an adviser or trustee for the Brookings Institution, Cambridge University, the New York Stock Exchange, the Investment Fund for Foundations, the Edna McConnell Clark Foundation, and the commonwealth of Massachusetts.
Mr. Swensen is the author of two books: "Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment" and "Unconventional Success: A Fundamental Approach to Personal Investment."
Alex Banker will serve as interim CIO while the university plans to install a permanent replacement. Mr. Banker, who joined the endowment in 1997, oversaw risk management and capital markets.
Mr. Swensen is survived by his wife, Meghan McMahon; three children; and two stepchildren.
Donations can be made in Mr. Swensen's memory to the David Swensen Initiative at Yale, which supports activities, projects and people that he found especially meaningful.
