Yale’s David Swensen leaves powerful legacy behind in venture

Swensen, who died Wednesday at 67, was a pioneer of the the 'Yale model' for public investment portfolios that focused heavily on VC and other alternatives.

The death of Yale University chief investment officer David Swensen sent reverberations through the investment community this week.

Tributes rolled in not only for his groundbreaking part in making alternative investments an integral part of public investment portfolios but for his friendship and willingness to mentor others.

“He’s a titan in the industry. This is a sad day for institutional investors,” said Christopher Schelling, director of alternative investments at Venturi Private Wealth and former private equity director at Texas Municipal Retirement System.

Scott Kupor, managing partner of Andreessen Horowitz, tweeted that the financial world lost a pioneer and a leader. He wrote that Swensen “left his mark as a renowned asset manager, but more significantly he was a teacher, mentor and partner to nearly everyone he encountered.”

Kupor added: “His legacy will live on in the incredible diaspora of Yale endowment alums who practice their profession in the long shadow that David’s mentorship casts.”

Swensen died of cancer on Wednesday, according to a post from Yale president Peter Salovey. He was 67. Swensen was a Yale graduate who had run its investment program since 1985. As of June 30, 2020, the endowment was valued at $31.2 billion.

Swensen helped kick-start a trend of big endowments piling capital into venture capital and private equity, which helped fuel institutional investor demand for alternatives that has grown into a multibillion-dollar industry. This became known as the “Yale Model” or the “Endowment Model.” He also wrote two books on investing, which were highly influential.

For fiscal year 2021, Yale’s target allocations included 23.5 percent to venture capital and 17.5 percent to leveraged buyouts. According to the school’s 2020 report, it sought to commit about one half of its portfolio to illiquid asset classes.

“David’s ideas reverberated beyond Yale as he revolutionized the landscape of institutional investing,” Salovey wrote.

“David wrote the book on how to run an institutional portfolio,” said Chris Ailman, CIO of California State Teachers’ Retirement System, in a statement. “No one can match his legacy, results and contribution to our industry.”

Swensen joined Yale in 1985, prior to which he worked at Salomon Brothers and Lehman Brothers. From his perch building out alternatives for the endowment in the early days of private equity, Swensen was able to back some of today’s biggest managers, including Great Hill Partners.

He also backed hedge fund Farallon Capital Management and General Catalyst in the early days, according to Bloomberg. “Dave absolutely put us in business,” Joel Cutler, a General Catalyst founder, told Bloomberg in 2019.

Trevor Loy, a managing partner at Flywheel Ventures and a lecturer at Stanford University, said he shared a note with his students about the passing of Swensen. The note read, in part: “While the growth of venture capital and entrepreneurship is the collective result of thousands of people, I would put David in the top five (and possibly #1) among people whose contribution has been the greatest. He literally revolutionized institutional investing.”

Loy added, “More importantly, and close to my heart, he had the soul of a teacher and love of serving others.”

Swensen’s approach was not without its detractors. A recent study from Richard Ennis, the retired chairman of consultant EnnisKnupp, found that alternative investments had failed to protect pension funds and endowments during the global financial crisis, according to Institutional Investor, even going to far as to call the belief these asset classes provide better returns an “article of faith.”

“Since the great financial crisis there has been criticism of the model in that it did not take into proper account the illiquidity of most alternatives, and to an extent disregarded asset/liability balance, especially during a liquidity shock,” Kelly DePonte, managing director with placement agency Probitas Partners, said in an email.

Still, the model that Swensen developed is widely used today across large institutions.

“I think the real legacy should be the creativity and the innovative unconstrained approach that went into building that model as opposed to his legacy being the static kind of allocation that a lot of people have tried to mimic,” Schelling said. “They allocated to private equity not because they had a top-down asset class allocation to private equity but because they found great managers.”

More reaction here:

  • Neil Sequeira, a co-founder of Defy Partners and a former managing director of General Catalyst, wrote on LinkedIn that Swensen “helped to create the private equity business as we know it. Thank you.”
  • “David Swensen will not only be missed for his investment acumen and steady, innovative leadership as Yale’s chief investment officer, but for his kind and generous spirit,” Jagdeep Singh Bachher, CIO of the University of California, said in a statement.
  • “David Swensen was an extraordinary person,” said Jim Bailey, co-founder of Cambridge Associates, in a statement to affiliate publication Buyouts. “He was bold during a time when institutions still looked at investments from a simplified portfolio perspective, and he was a leader in making endowment management a meaningful career for many. Most importantly, his work materially improved investment results.”
  • “Finance lost its greatest champion for diversification, long-termism, and creative asset allocation,” John L Bowman, senior managing director at CAIA Association, a global credentialing body for alternative investment analysts, wrote on LinkedIn.