R.I.P. David Swensen, Stealthy Investing Guru

[OldShooter]

For those who don't know, Swensen was a kind of stealthy Warren Buffet, primarily an investment strategist, who had huge success running the Yale endowment. Here is the NPR obit: https://www.npr.org/2021/05/08/9947...-you-maybe-never-heard-of-leaves-powerful-leg

Purely by coincidence, a few months ago I bought a copy of Swensen's book "Unconventional Success," written for individual investors. It's 15 years old and my expectation was that comparing his strategy and recommendations to what actually transpired over 15 years would be very interesting.

What I got was very different from what I expected. The book peels the indexing onion a couple of layers beyond what authors like Malkiel and Ellis have given us. Lots of detailed information on cost tradeoffs, well seasoned with contempt for much of the investment industry. It's as fresh and relevant as tomorrow's news. As an index investor, one thing very interesting to me was the problem of how indexes are created and maintained. This has major effect on fund turnover and, hence, fund cost. He singles out the Russell 1000 and 2000 indexes as particularly bad actors, creating unnecessary turnover. Also, the book has an excellent index, making it a great reference.

With his death, I suppose there will be new interest in this book, but if you can get a copy I don't think you'll regret it.

 

[street]

He sounded like a very intelligent man. RIP

 

[target2019]

I've read quite a bit about David Swensen and the Yale Model. Everything about him was interesting.
https://president.yale.edu/president/statements/david-swensen

The annual reports were thought-provoking:
https://investments.yale.edu/s/2020-Yale-Endowment.pdf

He distinguished between which model was correct for an endowment and what was best for the individual investor.

 

[audreyh1]

OK - that’s pretty shocking! 67 dang!

 

[jollystomper]

I had a chance to meet him at an Ivy League alumni conference, 20+ years ago, when his approach first started gaining popularity in the business world. Very intelligent but humble and down to earth.

Soon after his initial cancer diagnosis, he received the Yale Medal, the school's highest award for Alums. Friends from Yale told he how surprised and humbled he was at the honor. RIP.

 

[OldShooter]

Capitalism lives! My January '21 Amazon invoice for Swensen's book, bought used I'm sure, was $11.82. Now Amazon vendors are asking close to $40 for both used and new copies.

 

[Markola]

He sounds like a first rate human. Purely regarding investing, I do not believe that fancy, complex investments beat simple index funds over long periods of time.

He’s credited in the article with turning Yale’s $1 billion endowment into $31 billion between 1985 and 2020. OK, but Yale had several multi-billion fundraising campaigns during that period. I have heard about David Swenson for years and years, but I don’t recall the gushing articles accounting for the vast new money that poured into the endowment from donations. Sorry to be a skunk at the party.

 

[RetiredAt55.5]

Capitalism lives! My January '21 Amazon invoice for Swensen's book, bought used I'm sure, was $11.82. Now Amazon vendors are asking close to $40 for both used and new copies.

$16.99 for the Kindle version

 

[target2019]

He sounds like a first rate human. Purely regarding investing, I do not believe that fancy, complex investments beat simple index funds over long periods of time.

He’s credited in the article with turning Yale’s $1 billion endowment into $31 billion between 1985 and 2020. OK, but Yale had several multi-billion fundraising campaigns during that period. I have heard about David Swenson for years and years, but I don’t recall the gushing articles accounting for the vast new money that poured into the endowment from donations. Sorry to be a skunk at the party.

Not sure what article you're looking at. Swensen's re-tooling of the endowment was trend-setting. New money and property donations are what they are. His influence was to plan for a very long future. All of the endowment reports are on the web site. I've read a few over the years, and found nothing deceptive.

You're welcome to have an opinion of how an endowment should invest in index funds. I believe from what I've read that an endowment has needs that differ vastly from those of a personal investor.

 

[target2019]

This is another interesting title:
https://www.goodreads.com/book/show/5618253-the-ivy-portfolio

It provides an analysis of what the Ivy endowments of Yale and Harvard were doing at a point in time, and why an individual investor simply could not replicate the approach. I'm including this as information and diversion for those who like to investigate.

 

[Markola]

All of the endowment reports are on the web site. I've read a few over the years, and found nothing deceptive.

Swenson was not deceptive at all. I meant that articles about his work and Yale’s endowment’s spectacular growth, including the obituary article Old Shooter posted, often did not account for the vast billions injected into the fund by new donations, celebrating instead only investment performance. There isn’t a word in the NPR article mentioning the contributions of donors and fundraising staff, just:

“Swensen was widely regarded by other investors as one of the greatest in the world. Case in point: He grew Yale's endowment from $1 billion in 1985 to $31 billion last year.”

Actually, he had a rather massive amount of tailwind. It’s a misleading statement and it’s the journalistic laziness that bothered me, not Dr. Swenson at all. Such poorly informed popular level articles leave a bad taste in my mouth, that there’s some magic in exotic investments that individuals should strive for if they want gravity-defying returns of the gurus we should emulate. I just think it’s wrong of the media to do that.

Anyway, for interest, here’s an article comparing the actual investment returns of big, complicated university endowments vs. a simple Boglehead fund. https://awealthofcommonsense.com/2017/02/how-the-bogle-model-beats-the-yale-model/

 

[Markola]

It’s the same old story as passive vs. active mutual funds, with excessive fees, rotating managers, rotating sector leadership, looking to past performance to predict future performance, the inability of investors (schools) to pick winning future managers ahead of time, and the like. I have no complaint about Dr. Swensen but find our society’s belief that there is a way to beat the market averages a flawed pursuit, which is damaging to celebrate. In summary, from the article I posted above:

 

[OldShooter]

Swenson was not deceptive at all. I meant that articles about his work and Yale’s endowment’s spectacular growth, including the obituary article Old Shooter posted, often did not account for the vast billions injected into the fund by new donations, celebrating instead only investment performance. There isn’t a word in the NPR article mentioning the contributions of donors and fundraising staff, just:

“Swensen was widely regarded by other investors as one of the greatest in the world. Case in point: He grew Yale's endowment from $1 billion in 1985 to $31 billion last year.”

Actually, he had a rather massive amount of tailwind. It’s a misleading statement and it’s the journalistic laziness that bothered me, not Dr. Swenson at all. Such poorly informed popular level articles leave a bad taste in my mouth, that there’s some magic in exotic investments that individuals should strive for if they want gravity-defying returns of the gurus we should emulate. I just think it’s wrong of the media to do that.

Anyway, for interest, here’s an article comparing the actual investment returns of big, complicated university endowments vs. a simple Boglehead fund. https://awealthofcommonsense.com/2017/02/how-the-bogle-model-beats-the-yale-model/

I havn't really paid much attention to Yale or Swensen except to be vaguely aware of his reputation. My plan when I bought his book was to learn more and to see him in a historical context.

But your comments here amount only to your personal conjecture that inflows to the endowment are the reason that Swensen had such good press. Do you have any actual facts that might support your conjecture? I have no idea whether you're right or wrong.

(The numbers in the article you linked are neither very relevant nor very surprising. First, from context the numbers appear to be averages rather than medians or dollar weighted. Second, they are not particularly relevant when discussing one manager. Third, we know that stock pickers on average underperform by the amount of their costs, so one might suspect that these numbers are evidence that the same thing occurs in large scale and more diversified portfolios. No way to know for sure, though.)

 

[jollystomper]

He’s credited in the article with turning Yale’s $1 billion endowment into $31 billion between 1985 and 2020. OK, but Yale had several multi-billion fundraising campaigns during that period. I have heard about David Swenson for years and years, but I don’t recall the gushing articles accounting for the vast new money that poured into the endowment from donations. Sorry to be a skunk at the party.

Keep in mind that not all donations go directly to the endowment. For example, During that time Yale has also added aggressively to its real estate, building new buildings, major renovations of existing buildings (which I hear they had done almost none before the 1980s), and purchases, to the point where New Haven was concerned at the tax loss from properties Yale was buying up.

Here is Yale's last annual news release on their endowment: https://news.yale.edu/2020/09/24/investment-return-68-brings-yale-endowment-value-312-billion

 

[Markola]

All good points OldShooter and jollystomper. Cheers.

 

[target2019]

Swenson was not deceptive at all. I meant that articles about his work and Yale’s endowment’s spectacular growth, including the obituary article Old Shooter posted, often did not account for the vast billions injected into the fund by new donations, celebrating instead only investment performance. There isn’t a word in the NPR article mentioning the contributions of donors and fundraising staff, just:

“Swensen was widely regarded by other investors as one of the greatest in the world. Case in point: He grew Yale's endowment from $1 billion in 1985 to $31 billion last year.”

Actually, he had a rather massive amount of tailwind. It’s a misleading statement and it’s the journalistic laziness that bothered me, not Dr. Swenson at all. Such poorly informed popular level articles leave a bad taste in my mouth, that there’s some magic in exotic investments that individuals should strive for if they want gravity-defying returns of the gurus we should emulate. I just think it’s wrong of the media to do that.

Anyway, for interest, here’s an article comparing the actual investment returns of big, complicated university endowments vs. a simple Boglehead fund. https://awealthofcommonsense.com/2017/02/how-the-bogle-model-beats-the-yale-model/

I suggest reading a few annual reports instead of popular articles.

 

[target2019]

Keep in mind that not all donations go directly to the endowment. For example, During that time Yale has also added aggressively to its real estate, building new buildings, major renovations of existing buildings (which I hear they had done almost none before the 1980s), and purchases, to the point where New Haven was concerned at the tax loss from properties Yale was buying up.

Here is Yale's last annual news release on their endowment: https://news.yale.edu/2020/09/24/investment-return-68-brings-yale-endowment-value-312-billion

Thanks for posting the article. I think one major point is that the focus is on the long-term, not beating US Market returns. Some of the assets are way out in the future (like forests). Infrastructure that deteriorated in the past is now a focus.

 

[Free To Canoe]

I followed David Swenson earlier in my financial educational history. His results lost some of their shine during on of the big downturns (2008?). I realized that the objectives and methods of a large endowment are somewhat different than the personal investor. I no longer followed him so closely in recent years. You can definitely learn a few things from the works of this brilliant and sharing person.

 

[flintnational]

From the Yale News:

"The university’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 10.9% per annum over the 10 years ending June 30, 2020, trailing broad market results for domestic stocks, which returned 13.7% annually, and exceeding results for domestic bonds, which returned 3.8% annually. Relative to the estimated 7.4% average ten-year return of college and university endowments, Yale’s investment performance added $9.6 billion of value in the form of increased spending and enhanced endowment value. During the 10-year period, the endowment grew from $16.7 billion to $31.2 billion. "

10 Year Annualized Returns

Yale's return.....................10.9%
Average Endowment...........7.4%
60/40 Portfolio return.........9.74%*
70/30 Portfolio return.......10.73%*

*Simple weighted average of the stock and bond returns listed in the article without re-balancing.

Yale holds a broader basket of assets than a straightforward 60/40 asset mix. Accordingly, I have no idea what the risk adjusted returns would look like. From the same article, the Yale 20 year returns outstripped the markets and other endowments by a wide margin,Yale 9.9%, Stocks 6.2%, Bonds 5.1%, Average endowment 5.6%.

While individuals may or may not be able to beat Yale's returns, its likely, based on the past 10 and 20 year periods, they can beat or match the average endowment by simply holding a 60/40 or 70/30 asset mix.