David Swensen

“So I met with David a couple months back, and one of the interesting things he talked to me about with his investment committee was getting non-financial people involved on the committee. And I think there's huge value in that. Like, at Tufts, we have CEOs of …”

“If you were going to diversify away from sixty-forty, by definition, everything else had to be less liquid. And that was one thing I think people misinterpreted in what he did.”

“Particularly glad that you did go, because I know David had some reservations in those days. He's modified his views since then.”

“Now, of course, David could later raise a question, but he never did in the 16 years that I was there. Never did.”

“Dave Swenson, I asked for his help, and he got me an offer to come to Princeton for triple my compensation. I got my own offer to go to Duke, my alma mater, undergrad, for double, so I took the Duke job”

“There is something to the structure of what Yale did and the discipline that has been proven that David has been able to teach other people. It could Seth Alexander, who I worked with, and Paul Valente at Bowdoin, and Andy Golden at Princeton, and Peter Ammon …”

“So the notion of independent ownership is as an investor, you want all of the money that you're paying to go to the management team of that fund. And they stick very rigorously to that. I've seen lots of notable exceptions that work fine without that.”

“Yale did not ever take economics in businesses. However, they Often were very early. I'm not sure about first or very early and meaningful in the success of many of the funds that people know of today. And I think that's consistent with how David views the wor…”

“Here we had a very select number, maybe three folks on the investment committee. Folks that, Ted, you know, and David Swenson, who was there from Yale. We had the CIO from General Motors and the former CIO at IBM.”

“I never would have been able to compete with what I knew then with someone coming out of college today.”

“And he mentioned that they hired one person a year.”

“One of the lesser known characteristics of David's success has been his ability to work with his board. This is the investment committee who's ultimately responsible for making the decisions. And what I saw in the way he worked with his board is that if there …”

“People aren't clear about what they're doing. They can't really articulate it for you. If it's a complex area, they can't put it in terms that you understand. Too much jargon. Math. Can't do math in their heads. Things like that.”

“The core of how David approached kind of the investment problem, which is pervasive, is he developed a certain set of beliefs about investing. And then he was incredibly good at communicating those beliefs to his constituents, which is his board, his team, and…”

“So sure enough, Lehman was on the list years before the Lehman problem, and years before the Lehman problem, they were taken off the list. And why? Because if you examined it rigorously and carefully, you would realize they're not quite as good at this kind of…”

“The business part is really nice, but it is not the motivating force and it is not what we should be aiming for. We take it because it comes, but the real purpose is the professional side.”

“And the characteristics of that unusualness would be first that they were Yale chosen when they were first getting started. And then Yale would be a major account for them. Usually their sole major account or their leading major account. And usually right from…”

“And for me, it was a guaranteed twelve-hour day, eight in the morning to late at night, trying to be sure that I was on top of all the different dimensions of analysis and thinking that had been put together in these books. And, you know, they were inch and a …”

“I think he would do what he did the first time, and this is the most important lesson he taught, but most people don't even pay attention to it. Who is the client? What are the characteristics that make that client unusual or even unique, and how can you devis…”

“He used to hate airline stocks and any manager who owned them was off the list.”

“Absolute imperative was the focus, first, second, third, on risk. Everybody looks at the rate of return success that the Yale endowment had, and it is. A wonderful rate of return success. But the really great secret or the great lesson to learn is that David S…”

“So it's like a funnel, that wide angle at the beginning, thousand students a year at Yale, down to 25 students in the class, down to one or two chosen for summer interns. Down to one or two chosen for the long term. It's just, by the time you do all the sortin…”

“Well, first of all, very few of the managers he's chose at any time were at all widely known. They just were never widely known until after they had been chosen.”

“There was none of the apple polishing or brass polishing or let's be friends and let's develop a special rapport. Uh-uh. Not at all. It's all very, very disciplined process.”

“Once, gee, once in 1516, 17 years, an item was withdrawn for further consideration, and of course it never came back.”

“David's the first person in the world to do a derivative swap. First person in the world”

“Where he could have added maybe 200 basis points in each of those two dimensions, then it was a 150, then a hundred. And I would guess it's down under a hundred now, maybe in around 50, and there's not going to be another source that I know of.”

“I've served on 14 different investment committees, and the usual due diligence is four or five references for any major manager decision. Ah, not at Yale. 15, maybe. 20, maybe. Might even get to 25.”

“And when I first got there, David would look over my shoulder and say, no one can anticipate interest rates. You should get rid of these investments in global macro. However, those have been a signature part of Bowdoin's portfolio.”

“Also, in some of the cases in some asset classes, for instance, venture capital, unless you had access to the very best managers, it wasn't worth doing at all.”

“Well, first of all, I think that the Yale model, quote unquote, is not a recipe that can be transferred. It's different for every organization, so it's more the key tenets of thinking about long-term investing rather than a recipe.”

“When you think about the David Swenson model, people think it's this recipe that you can replicate by just throwing ingredients into a bucket and throwing them into an asset allocation model, and you're going to get the same results. And the reality is you hav…”

“We all were trained in the same discipline, and there are literally no examples of someone who was trained by David, who stayed in the business, who didn't succeed.”

“While he was at Salomon Brothers, he came up with a cockamamie idea that nobody had ever heard of. An interest rate swap, a hundred million dollars, principle, between the World Bank and IBM.”

“One of the things we talked about was David's view of culling versus weeding. Like, you could have four really good managers that have very similar characteristics. You just don't need all four of them. So then you pick the two that you think are the best, and…”

“Internalizing and implementing his approach, however, is as difficult as outperforming the markets.”

“David was a staunch proponent of asset allocation, but he recognized that asset allocation drives returns in the rearview mirror. If investors choose equities, and equities outperform over time, then asset allocation mathematically dominates long-term return a…”

“He said, in aggregate, buyout investments failed to match public market alternatives. After adjusting for the higher level of risk and the greater degree of illiquidity in buyout transactions, publicly traded equity securities gain a clear advantage.”

“The study describes investor behavior, not finance theory. Investor behavior causes policy asset allocation to dominate portfolio returns, since institutions tend to hold stable commitments to a broadly diversified portfolio of marketable securities.”

“He said, while illiquid markets provide a much greater range of mispriced assets, private investors fare little better than their marketable security counterparts, as the extraordinary fee burden typical of private equity funds almost guarantees delivery of di…”

“The illiquid markets today are far more efficient than they were in 2000 or 2009 when David published his groundbreaking work.”

“Embracing illiquidity is not a first principle of the Yale model, despite many misinterpreting David's beliefs as such.”

“He said, because of the strong fundamental links between private equity investments and marketable securities, private equity provides limited diversification to investors.”

“What David recommended to the committee more often than not was approved. So, I mean, David was the big hurdle. That we had to get over internally.”

“Some of the dynamics in the office, young people were included in everything, and there was no segregation of, oh, this is a high-level meeting. So everyone got to see everything”

“One thing I learned from David was there are certain things that managers can't respond to in a way that would change the outcome, and if you could come up with examples where there's nothing they can do about what their structure is, then you have an easy way…”

“Back in the day, Yale was a direct real estate owner of assets. When I joined, I was put in charge of managing all those assets, and David and Ellen and Donna were pursuing this New model called private equity real estate”

“If you want to diversify your equity exposure away from the US equity market, by definition, everything else you do in the world is less liquid. You have to embrace some level of illiquidity in order to get the diversification. In the book, he described illiqu…”

“There were probably half a dozen professional endowment foundation investment offices in the entire country. There were probably a dozen pools of capital like that in the world.”

“Those first principles for a pool like Yale, with very long duration assets, with very minimal spending needs, were to have an equity bias, because those spending needs, while minimal on a year-to-year basis, are high. Needs to spend at roughly five percent re…”

“Some of the things that he talked about in the books were things like the firm having low turnover as part of its investment strategy, being large enough to obviously pay the bills, but not so large that they're asset gatherers, employee ownership, rather than…”

“It came from Swenson, actually. David just called me one day and said, look, I have some advice for you. There's this job that's open, and I'm involved in the search, and I want you to jump into the search, and I want you to take the job. And for various reaso…”

“David invested with hedge fund managers Tom Steyer at Farallon, Nancy Zimmerman at Bracebridge, and Steve Mandel at Lone Pine on or close to day one.”

“He backed international equity managers Hill House, Overlook, and Silchester when they managed next to nothing, and he was perhaps the first institutional investor in a list of venture capital and private equity firms that constitute today's most well-known br…”

“And while that's pristine, there's a part of that that doesn't consider the necessity of a successful business in generating optimal investment performance. Oftentimes, allocators see a manager, they like getting there early, someone who's great, delivering pe…”

“So in contrast with Yale, where David Swenson pioneered the use of third-party managers to generate performance and manager selection, and then also overweighting into alternatives, Harvard decided to construct Their portfolio with in-house investors, and so t…”

“Whereas we want to make a huge amount of money in China, as China opened up as an investment opportunity, but a lot of that happened because of our relationship with Lei Zhang, who founded Hill House, and he happened to go to Yale's business school, and he hap…”

“He was 33 years old at the time, and he'd been in the job for probably two and a half years, so it was a pretty gutsy thing for him to do. We wound up having to do some things to mollify the chairman, which David wasn't exactly thrilled by, but we mostly got w…”

“You can be an early mover at a leading college endowment more easily than most people can. A pension fund officer of a medium-large firm has got so much career risk he doesn't know whether he's coming or going.”

“David made many people's careers. He could have made mine had he chose to. After that day, he decidedly chose not to.”

“He also was someone who, when you were on the team, it was white, and when you were off the team, it was black. He hadn't want me to leave to go to business school, so in those four years, I occupied an unusual gray role.”

“Almost all the senior leadership was hired by David and mentored by David.”