University Chief Investment Officer David Swensen is among the highest-paid — and best performing — CIOs in the North American higher education landscape, according to a report released last month by a reputed observer of the institutional investments field.
Compiled by investment executive recruiter Charles Skorina, the report ranked CIOs at 107 of the largest colleges and universities in the U.S and Canada by their compensation and compared their pay to a five-year annualized average of their institution’s investment performance from fiscal 2011 to fiscal 2016. Although Swensen ranked second on the first metric, as he is significantly outpaid by his counterparts at Harvard University, he delivered the highest average return of all managers, with 10.4 percent over the five-year period.
“The market for investment management talent is pretty inefficient,” Skorina wrote. “Paying a bigger salary doesn’t necessarily ensure that an institution gets better performance.”
While Skorina’s analysis was largely based on the compensations of Swensen and his fellow CIOs in the 2014 calendar year, tax filings made public over the summer show that Swensen earned about $4.2 million in 2015, marking yet another year during which the man overseeing Yale’s multibillion-dollar endowment was the school’s highest-paid employee.
Swensen’s compensation consisted of a salary and bonus as well as benefits and deferred compensation. University President Peter Salovey, by comparison, was paid about $1.4 million in the same year.
Stephen Blyth, Harvard’s CIO at the time, earned about $14.8 million in 2015, according to the Harvard Crimson. Harvard’s 5.8 percent endowment return in fiscal 2015 was almost 6 percentage points lower than Yale’s, and Harvard posted a 2 percent loss in fiscal 2016.
Blyth has since been replaced in his role at Harvard by Nirmal Narvekar, who earned $6 million in 2015 while leading Columbia University’s investments office. The fourth individual to lead Harvard’s investments office in the past decade, Narvekar will earn at least $6 million this year, according to The Crimson.
Like other tax-exempt organizations, Yale is required by the IRS to annually disclose financial information including annual expenditure, revenues and information about its highest-paid employees.
Four of the 22 employees whose compensations were disclosed by Yale work for the Investments Office. Senior director of investments Dean Takahashi, who earned about $3.2 million, was the second-highest-paid employee in 2015.
According to tax filings from 2016, Swensen received about $900,000 more in compensation in the 2014 calendar year than in 2015. About $860,000 of Swensen’s 2014 compensation had been reported as deferred compensation in filings from previous years.
The decline in Swensen’s pay from 2014 to 2015 coincided with a decline in the performance of Yale’s endowment, though returns consistently remained among the highest for universities. As Yale’s fiscal year ends on June 30, Swensen’s compensation for 2015 overlapped with both fiscal 2016 and fiscal 2015, when the University reported endowment returns of 3.4 percent and 11.5 percent, respectively. The two fiscal years occurring in 2014 saw the endowment return 11.5 percent and 20.2 percent.
A Yale spokesperson did not respond to a request for clarification regarding the compensation structure of University employees.
“Strong CIOs are huge drivers of success for their schools in a competitive world,” Skorina wrote in April. “A consistent margin of [0.5 to 1 percent] translates into real, serious money for tuition assistance, salaries, programs and facilities.”
When accounting for the performance of Yale’s Investments Office over the past three decades, several finance experts contend that Swensen and his colleagues more than earn their keep.
The office is widely recognized as the best endowment manager in higher education, generating a 13.9 percent annualized return between fiscal 1985 and fiscal 2015 that outperformed the average return of colleges and universities measured by the National Association of College and University Business Officers by 5.0 percent per annum for the same period.
In a foreword to a 2009 book authored by Swensen, former Yale Corporation Investment Committee Chairman Charles Ellis ’59 wrote that the Investments Office has contributed “multiples more than any of Yale’s most generous benefactors” to the University.
“Only King Abdullah of Saudi Arabia, who recently funded the new King Abdullah University of Science and Technology with $20 billion, has done more for a university anywhere in the world,” he added.
Massachusetts Institute of Technology finance professor Andrew Lo ’80 said the constraints on university salaries prevent many institutions from hiring someone of Swensen’s caliber.
Swensen has led the Investments Office since 1985 and is credited for devising the diversified Yale Model of asset allocation that has seen the University’s investments add $26.6 billion in value relative to the investment performance of the mean endowment, as measured by investment advising firm Cambridge Associates.
“Yale is very fortunate because David Swensen can easily multiply his annual compensation several-fold by simply leaving and creating his own investment fund,” Lo said. “He chooses to be at Yale because he loves the institution, and that’s a very special relationship.”
As of the end of fiscal 2016, Yale’s endowment had a total market value of $25.4 billion.
Ishaan Srivastava | ishaan.srivastava@yale.edu