On May 5, local time, David Swensen, the head of Yale University Endowment Fund, died at the age of 67 after years of fighting against kidney cancer.
Through diversified investment portfolio, Svencen increased the endowment fund of Yale University from $1 billion in 1985 to $31.2 billion in 2020, becoming a legendary investor and inspiring the fund operation of other American universities.
Svencen graduated from the University of Wisconsin, where his father taught, and then went to Yale University, where he studied under james tobin, a later Nobel laureate in economics. In 1980, Svencen received a doctorate in economics. After working in investment banks Lehman Brothers and salomon brothers for some time, Svencen returned to Yale with a salary cut of 80% and began to work for the endowment fund of his alma mater.
As early as 1980s, Svencen strongly supported a radical view that institutional investors should reduce their investment in stocks and bonds and invest in hedge funds, real estate, timber and other alternative investments with a long-term perspective.
In his book “Pioneering Portfolio Management”, he introduced this “Yale Model” which almost reshaped the investment community. This book has now entered the required reading list of many business schools.
When the Internet bubble burst in 2000, Svencen’s investment also performed well, which was mainly due to his massive hedging over the years, which reduced Yale’s risk exposure in the field of science and technology.
However, after the financial crisis in 2008, Svencen and his Yale Endowment Fund also suffered heavy losses, with a loss of nearly 25% in a fiscal year. For Svencen, the crisis has highlighted that even investors who mainly focus on undervalued securities should not ignore systemic risks.
In 2009, Svencen told The Wall Street Journal that he knew every position of every hedge fund that Yale invested in. “We demand complete transparency.” “If they don’t give us this information, why should we trust them and give them our money?”
Zhang Lei, the founder of Gaoyao Capital, who worked as an intern with svensen at Yale University, wrote on May 7 that the industry principle represented by the word “trustee” has guided many important decisions in svensen’s life, which means protecting the interests of investors and keeping your interests consistent with those of investors and partners who trust you. Zhang Lei mentioned that there is another saying in Svencen, “If you manage risks well, you will naturally get benefits”.
According to Yale University data, as of June 30, 2020, Svencen’s average annual return at Yale was 13.1%, which was 4.3 percentage points higher than the traditional portfolio of 60% stocks /40% bonds. This fast-growing endowment fund provides Yale with one-third of its operating budget and makes Yale one of the richest schools in the United States, second only to its main competitor, Harvard University.
Maintaining a high rate of return for many years is not enough to sum up Svencen’s influence. As Peter Salovi, president of Yale University, wrote in a commemorative article, Svencen “completely changed the mode of institutional investment. His investment method, known as the “Yale model”, has now become the standard of many universities and foundations. As a “natural teacher”, Svencen has also trained a generation of institutional investors, and his students have begun to dominate the investment offices of many universities.
Andrew Golden, head of Princeton University Endowment Fund, worked in Yale Investment Office in 1980s. In 2017, he told the Wall Street Journal: “90% of my good ideas on how to organize the office and develop the office culture were stolen from Yale.”
In the early days when Zhang Lei, who had never managed an investment fund, founded Gaolin Capital, Svencen also injected $20 million into Gaolin through Yale University. According to Svencen himself in an interview in 2017, this investment has brought a return of $1.3 billion to Yale in the past 12 years.
According to Zhang Lei’s recollection, when he asked Svencen why he invested in Gaochun Capital, Svencen responded: “When you work with the right people, good things will happen.”
Zhang Lei also said that Svencen spent a lot of energy on teaching and educating people, and often provided students with lunch time to help them think about what kind of career they should be engaged in and what kind of life they should live. “Perhaps for Svencen, nothing represents long-term value investment better than’ investing in people’,” Zhang Lei wrote.