When David Swensen was being courted to head up the Yale Investments Office in 1985 by former Provost William Brainard, he admitted he knew nothing about endowment management.
“You know, Bill, I don’t know anything about portfolio management, and I don’t think Yale could afford me,” he told his former dissertation advisor.
While Swensen is usually a man of few words when it comes to the Yale endowment, he spoke frankly to a crowd of about 30 on a myriad of topics ranging from ethical investing to his own career path at a Sunday afternoon Master’s Tea at Silliman College.
Swensen said he initially had qualms about leaving his lucrative Wall Street career to head the Investments Office. Nevertheless, he took an significant pay cut and came to Yale because he said he knew it would be an “interesting job.”
“One thing I worried about was that I would miss the money,” he said. “The only thing that changed was the quality of the wine and beer I drank.”
Swensen cited two problems with the endowment’s asset allocation when he initially arrived. First, he said that the endowment’s heavy investment in bonds dampened potential returns. Second, the endowment lacked diversification.
He said he steadily moved Yale’s assets into more unconventional investments such as timber, oil and private equity.
Swensen defended his unorthodox investment strategies, but said he would have been looked upon particularly harshly had he failed.
“Conventional failure is far more acceptable in the eyes of the public,” he said. “I knew what we were doing was right for the University.”
While Swensen said the 41 percent return in fiscal year 2000 “was fun,” he said last year’s 9 percent return in the midst of a global recession was far more fulfilling.
He admitted that favorable economic conditions were a factor in the endowment’s growth, but primarily credited his team’s active management.
“While it’s nice to have the wind at your back, the endowment would be less than half of what it is now if Yale had not been as active as it has been,” he said.
When asked about endowment performance in the wake of Sept. 11, Swensen said it was largely unaffected.
“We’re holding our own,” he said. “The markets have been tough.”
Many students asked about how Yale insures its investments are ethical. Swensen said his office exerts much effort in searching for ethical investment partners.
“Our first line of defense is the quality of people we do investments with,” he said. “We spend a lot of time and energy to work with people of the highest integrity.”
Swensen also said Yale never invests in anything questionable or of uncertain quality.
“If I don’t understand why it is something doesn’t make sense, Yale isn’t going to invest in it,” he said.
Brian Hirschmann ’03 said he enjoyed hearing Swensen speak about his career path from Wall Street to the Yale Investments Office.
“I thought he was an excellent speaker,” he said. “It was interesting that [Swensen] pursued a career in nonprofit endowment management as opposed to a more lucrative Wall Street career.”
Swensen said his job is very satisfying for a competitive person like him.
“I want to make more money than anyone else,” he said.