Swensen confident in face of failing market

In 1987, after just a few years on the job, Chief Investment Officer David Swensen met with a nervous University President Benno Schmidt ’63 LAW ’66. The stock market was sagging, and Schmidt wanted answers about the performance of Yale’s endowment.

“Don’t panic,” Swensen told him. “Ride it — it’s not going to last.”

Chief Investment Officer David Swensen, who has overseen double-digit growth in the University’s endowment for the last four years, counsels individual investors to leave financial strategy to professionals and remains confident in face of the market.
YDN
Chief Investment Officer David Swensen, who has overseen double-digit growth in the University’s endowment for the last four years, counsels individual investors to leave financial strategy to professionals and remains confident in face of the market.

The president took his advice. “And Swensen was right,” Schmidt later recalled, according to Gaddis Smith ’54 GRD ’61, the emeritus professor and Yale historian.

Two decades later, the stock market is sagging again. And, again, Swensen is sticking to his guns.

In a rare interview published last week in The New York Times, the notoriously private investments czar offered his advice for investors feeling anxious over the state of the economy in the United States, where the S&P 500 has fallen eight percent this fiscal year.

The best strategy to weather the storm is to keep the strategy simple, according to Swensen, who nursed Yale’s endowment to a class-leading 28 percent return last year. Just stick to a diversified portfolio and remain committed to your long-term allocation of assets.

And, he added, don’t pay attention to the pundits who claim the sky is falling.

“You have to diversify against the collective ignorance,” Swensen told The Times. “I think nobody is in a position to react to these big macro-issues. Where is the dollar going to be or what is G.D.P. growth going to be in China? For every smart person on one side of the question, there is another smart person on the other side.”

But Swensen — with a paycheck of $1.7 milliom in 2005, Yale’s highest-paid employee, according to tax filings — offered a warning to individual investors: Leave the strategizing to the professionals.

“There is no way that an individual can go out there and compete with all these highly qualified and compensated professionals,” Swensen said.

So, he said, turn off Jim Cramer, the CNBC stock-picker.

“There is nothing that Cramer says that can help people make intelligent decisions,” said Swensen. “He takes something that is very serious and turns it into a game. If you want to have fun, go to Disney World.”

This year though, it may be more prudent to stay at a budget hotel. While Swensen cautioned against panic, the University’s 2008 Endowment Report is almost certain to be far less rosy than it has been in recent years.

The 28 percent return last year — which brought the endowment to $22.5 billion — was the fourth straight double-digit return for the University. But this year, that could change, according to financial experts, given the decline in the financial markets. At the same time, Yale may be able to stay afloat better than most institutions can because of its wide range of endowment assets, they said.

“The fact that it’s a very well-diversified portfolio … does protect us quite considerably,” University President Richard Levin said last month.

Still, he added, “That doesn’t mean we’re immune.”

But in his fifth-floor office at 55 Whitney Ave., Swensen is not stressing out. Even as the market sputters, investors should not lose sleep, Swensen said.

“Let yourself off the hook,” he told the Times. “If you pursue the sensible long-term policy, look at it over a 5- to 10-year period. Don’t look at five months.”

Swensen was unavailable for comment Tuesday, according to an aide, but that may have been irrelevant; he virtually never speaks to the press.

But when he does talk — rare as that is — people listen. The fact that he has nursed the Yale endowment to a 17.8 percent average annual return over the last decade may have something to do with it.

“He’s a public figure,” Smith said, “in spite of himself.”

Comments

  • Hieronymus

    "Where's Benno?"

    And hats off to David Swensen: Yale--and most of its competitors, really--owe him, well, billions.

    I hope his defcomp pack makes up for his payscale (and his being forced to occupy 55 Whitney--couldn't Yale scrape up a spare Victorian or something?).

    Bravo!