openpolitics.com

Certainly no school has incubated as many endowment managers as Yale.

.. Mr. Swensen is legendary in the rarefied world of endowment management. He has pioneered an investment strategy that expanded Yale’s portfolio from a plain-vanilla mix of stocks and bonds to substantial holdings in real estate, private equity and venture capital, along with other alternatives. Until then, the typical endowment was far more conservative.

.. he is one of the most influential people in a generation that has seen endowments grow tremendously in importance at premier institutions. Yale’s endowment now provides 33 percent of the school’s budget, compared with 10 percent in 1985.

.. Mr. Swensen’s route to the endowment world was circuitous, though. “My father and my grandfather were both chemistry professors,” he said. After earning a doctorate in economics from Yale in 1980

.. while he was researching bond prices at Salomon Brothers for his Ph.D. dissertation, “they offered me a job

.. In 1985, the Yale provost, William C. Brainard, plucked him from Wall Street and asked him to take over the school’s $1 billion endowment.

.. His acceptance meant an 80 percent pay cut. But Mr. Swensen says he never regretted returning to work for an academic mission. “I am in the fortunate position of making very good money,” he said, for something he loves doing. He made $5.1 million in 2014, the latest numbers available.

.. Part of that process soon included the weekly meeting to debate investment ideas. “Seeing that there was a debate, even at the most senior level, taught everyone to have their own view,” Mr. Golden said.

.. “I think that if you write your argument down, you might recognize flaws in it.”

.. There are some categories of manager that turn Mr. Swensen off, like the “asset gatherers,” as he calls them, often famed for building mammoth investment funds by attracting scores of individual investors. “The Bill Grosses and Peter Lynches are about asset gathering” he said, referring to one of the founders of Pimco and to the former manager of Fidelity Investments’ Magellan Fund. “More assets produce more fees, but they force managers to add more positions, not just Grade A ideas,” he said.

.. Nor does leverage — the use of borrowed money to try to amplify returns — appeal to the Yale team. “We want managers who are interested in improving operations as a way to create value, as opposed to financial engineering,”

.. Mr. Swensen also has little patience for some activist investors like William A. Ackman of Pershing Square Capital Management, who has mounted public battles aimed at spurring target companies to revamp. “The drill is that they want return of capital, whether it comes from cash distributions or stock buybacks. That is an extraordinarily short-term orientation,” Mr. Swensen said. “By and large, American companies are underinvesting for the future, and a lot of that has to do with either implicit or explicit pressure from activists.”

.. Former analysts describe how they learned to be careful observers of personality and engagement when vetting prospective money managers. “We learned to look for managers who know their portfolios well,” said Paula J. Volent, senior vice president for investments atBowdoin College. “If they have to look at a piece of paper in a meeting, then they don’t really know.”

.. This is a partnership, and there will be tough times, so how will it be then?” she said. Wesleyan didn’t give him the money.

.. Mr. Swensen says he is pleased when his analysts go to the nonprofit world. He never considered leaving Yale and was disappointed when, in 2007, Mohamed El-Erian quit as head of the Harvard endowment, after less than two years, to return to Pimco.

.. Mr. Swensen required a fee structure “where managers did not get any of the profits until there was a 6 percent hard return, or whatever number an investor could get from a passive investment at that time.” The money managers objected — they wanted 20 percent on the entire profit — but lost. “David’s way is fairer,” she said.

.. Mr. Swensen acknowledges that, going into 2008, “We were too illiquid, and now we are not as illiquid. We want 50 percent of our assets in liquid investments,” he said.

.. she has “a lot of money in global macroeconomic funds.” She added, “They have been great for us, but David hates that area. He thinks no one can anticipate changes in currencies and interest rates.”

.. over a 20-year run, Yale’s average annual return has been 12.6 percent compared with 7.4 percent for the 60-40 portfolio.