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With the Passing of David Swensen, the Investment World Loses More than a Brilliant Manager

Observations
May 20, 2021

At the recent passing of David Swensen, the deservedly famous head of the Yale Endowment, many commented on how revolutionary and successful his ideas have been in raising institutional investing to a whole new level. Swensen, effectively the father of what has become known as the “Endowment Model,” pioneered the broad expansion into new asset classes, creating an impressive return history. Although we too admire Swensen for his investment brilliance, we also admire him for a couple of ways in which he exhibited his extraordinary integrity as a human being.

First, Swensen dedicated his professional life to an educational institution rather than a for-profit entity. Though he was the most highly compensated employee of Yale University, he clearly could have earned hundreds of times more in compensation had he opted to go into business for himself. He spoke eloquently, though, of the calling of working for a university, and his choice to remain at Yale despite his opportunity cost exemplified selfless dedication to something bigger than himself.

Second, many people don’t focus as much on Swensen’s role in helping individuals understand the complexity of finance, warning about the hidden risks of exotic investments, criticizing excessive fees, and highlighting the cost of ignoring the tax consequences for taxable investors, even though he managed an exempt portfolio. We appreciate his comment on the impact of taxes from his book Unconventional Success: “In an industry guilty of many crimes against investors, ignoring the tax consequences of portfolio transactions ranks among the most grievous.” Though he earned impressive returns in alternative asset classes, in the book, Swensen still expressed his disdain for the blustering swagger that often accompanies the pursuit of excess return: “Trendy investors often pursue the cocktail-party-chatter benefits of commitments to the promise, seldom fulfilled, of actively managed alternatives. Sensible investors avoid the non-core asset classes.”

Thus, while the industry lost one of its most successful investors, humanity also lost one of its most honorable exemplars of ethical behavior.


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