David Swensen: The Gatekeeper of Yale’s Endowment Fund

At $25.4 billion, Yale University’s endowment fund is one of the largest in the country. Since 1985 (when it totaled $1 billion), it has been overseen by David Swensen, described in a recent New York Times article as “legendary” in this role. Throughout his tenure, the article states, Yale has built one of the “strongest records among the nation’s largest endowments.”

According to the Times, Swensen has “pioneered an investment strategy that expanded Yale’s portfolio from a plain-vanilla mix of stocks and bonds to substantial holdings in real estate, private equity and venture capital, along with other alternatives.” A Yale alum with a doctorate in Economics, Swensen initially planned to become a teacher but was offered a job at Salomon Brothers while doing research on bond prices for his dissertation.

From the outset, his money management process included weekly debates on strategy with analysts and interns, one of whom was Andrew Golden (now head of Princeton’s endowment). “Seeing that there was a debate…,” he argues, “taught everyone to have their own view,” says Golden. From the beginning, Swensen advocated placing Yale’s funds with money managers that he carefully selected based on their fundamental investment philosophies. According to the Times, he also ensured that a firm’s management style was “balanced against whether [they] work in Yale’s interest.” The university now has nearly 100 active relationships.

Clearly, a candidate firm’s track record is of import to Swensen, but isn’t necessarily a deal-breaker. “Who cares about the trailing numbers,” he argues, “if the fundamentals of the portfolio are good?”