A piece of news from Yellen University on May 6, 2021 surprised and saddened the global investment community. David Swenson, the chief investment officer in charge of the Yale investment office for decades and regarded by many as the "Buffett of the institution", died of cancer the day before at the age of 67.

Yale President Peter Salovey announced the news in a statement. He began by writing that David Swenson died on the evening of the 5th after a long and courageous struggle with cancer. On Monday, Swenson and his old friend and colleague Takahashi taught the last course of the semester on investment analysis, which they have taught together for 35 years.

He is an outstanding colleague, a dear friend and a beloved mentor of many people, and future generations will benefit from his dedication, talent and generosity.

For Chinese investors, David Swenson is also known as the mentor of Zhang Lei of Hillhouse Capital.

Zhang Lei inCommemorative articleThe Legend never ends-in memory of David Swenson, the legendary pioneer of the global institutional investment community has been battling cancer for nine years.

It is in Zhang Lei's article that the world knows the valuable qualities of this world-renowned investment master: his open-minded and optimistic attitude has enabled him to maintain his determination and faith during his nine-year struggle with illness; his passionate love for his career supports him to teach his students at the end of his life and answer their questions patiently.

In my memory, David will always be like the first day I saw him, laughing with young people in the sun and in the corridor of my beloved university.

The turning point in life: leading the Yale Endowment Fund

David Swenson is best known for the "Yale model" he dominated at Yale, which is now the standard pursued by many universities and foundations.

As Peter Salovey, president of Yale University, said, David revolutionized the pattern of institutional investment, and his ideas had a profound impact outside Yale and were regarded as "legends in institutional investment".

Looking back on his legendary life, Swenson's relationship with Yale began in 1975.

According to a 2005 article in Yale Alumni Magazine, Swenson fell in love with the place when he came to Yale in 1975 as an economics graduate student. He said he had never met so many smart people who love ideas. While at Yale, Swenson studied with two economists, Nobel laureate James Tobin and economics professor William Brainard, and met his lifelong friend Takahashi. Takahashi joined the Yale Investment Office in 1986, a year after Swenson joined, and the two created a well-known investment model, the Yale model.

After receiving his doctorate in economics from Yale University in 1980, David Swenson worked for Solomon Brothers and Lehman Brothers, two well-known Wall Street companies at the time. During his time at Solomon Brothers, Swenson mainly provided financial advice and services to corporate and public clients. At the same time, he also proposed the concept of swap market (swap market). In 1982, Swenson joined Lehman Brothers as senior vice president of corporate finance and directed the swap market subsidiary, which was worth more than $50 billion by 1985.

But I've worked on Wall Street for 6.Years later, 1985年，31The 20-year-old Swenson decided to give up his high salary on Wall Street to lead the Yale Investment Office and manage his huge endowment fund, which meant that he would have to take an 80% pay cut.。

When the Yale endowment needed a new fund manager, Brainard, then provost of Yale University, extended an olive branch to Swenson. Swenson never managed an institutional portfolio at the time, Brainard recalls. "although it seemed like a strange choice, I wasn't worried about it."

There is no doubt that Swenson's ability will enable him to earn far more on Wall Street than at Yale.

As for his choice, Swenson once said, "I like the competition on Wall Street, but-- I don't make value judgments here-- that's not for me, because the end result is that people are trying to make a lot of money for themselves." that's not for me. "

On April 1, 1985, Swenson officially began his investment career in the Yale Endowment Fund. Under his leadership, the Yale Endowment Fund totaled $31.2 billion as of June 30, 2020, up from $1 billion at the beginning of its administration in 1985.

The Yale endowment has led the market with an annual return of 9.9% over the past 20 years, and an unparalleled 12.4% over the past 30 years, according to the website of the Yale investment office.

The huge increase in endowment funds has also made Yale one of the richest schools in the United States. In 1985, endowment funds accounted for only 1/10 of Yale's spending, but by 2019 it had risen to 1/3. The endowment fund not only covers the salaries of Yale faculty, but also provides financial support to more than half of the students.

Revive the Yale Endowment Fund

According to Richard Levin, the former president of Yale University, given the performance of the endowment, Swenson is the largest donor in the history of Yale University, and his influence extends far beyond the Yale campus.

If numbers are only a testament to Swenson's great influence, then his investment ideas are even more valuable wealth.

"David is the first to realize that active diversification, in-depth research and patience with managers pays off," says Jack Meyer, a competitor and close friend and former head of the Harvard endowment.

To understand Swenson's excellent performance, you must first understand a background.

Swenson devoted a chapter to explaining the purpose of the endowment fund in the Road to Innovation in Institutional Investment. For many universities in the United States, donation is an important source. Educational institutions accumulate donations to set up a special endowment fund as a relatively independent source of income. can enable institutions of higher learning to maintain independence, enhance stability and create a superior teaching environment.

Schools with the largest endowments become richer because their relative and absolute returns tend to be better.

But when Swenson took over, the Yale endowment fund had been mismanaged for some time. Between 1968 and 1979, during a period of high inflation and poor stock market performance, its purchasing power fell by 45 per cent, spending froze and an outside company set up by Yale to manage the endowment fund was fired.

In Swenson's view, to be a good endowment manager needs to have two goals: one is to be concerned about maintaining the purchasing power of the portfolio, and the other is to fund the operating budget as much as possible.

It is worth noting that in the early 1980s, Yale invested more than 3/4 in U. S. stocks, bonds and cash. In Swenson's view, such portfolio diversity is clearly not enough: putting too much money into US stocks and bonds makes Yale take too much risk and miss too many investment opportunities: such as foreign stocks, real estate, oil, gas, timber and other physical assets, PE, absolute returns, and so on.

In the innovative Road to Institutional Investment, Swenson writes that alternative asset classes can provide powerful tools to help investors reduce risk through fully diversified portfolios; specifically, absolute return strategies and physical asset investments can be used as diversification tools, while private equity investments have the potential to improve portfolio returns.

This ability to diversify was particularly prominent during the dotcom bubble in 2000.

According to a Bloomberg article in 2019, when the Nasdaq index peaked in Yale's fiscal year ended June 2000, the endowment's portfolio returned 41%, three times the average return of the endowment at the time. Even more impressive, Yale's diversified portfolio made a 9.2% return over the next 12 months as the stock market plummeted.

The biggest test of Swenson's investment career may have been during the financial crisis.

The Yale endowment returned-24.6% in the fiscal year ended June 30, 2009, when global stock markets fell nearly 30%. According to the 2009 annual report of the Yale Investment Office, the value of the endowment fund fell to $16.3 billion based on an investment loss of $5.6 billion, an operating budget allocation of $1.2 billion and other adjustment costs of $200m. In the end, it took five years for the Yale endowment to return to pre-crisis levels.