The world’s greatest investors: David F Swensen

David F Swensen, Yale University's chief investment officer, suggests building a diversified portfolio using low-cost index funds, bonds and real estate.


David F Swensen was born in 1954. He took an undergraduate degree at the University of WisconsinRiver Falls, then did a PhD in economics at Yale in 1980. He went on to work for both Lehman Brothers and Salomon Brothers, where he devised the first swap transaction. In 1985 he became Yale's chief investment officer, managing the university's endowment, which generates most of its income.

What is his strategy?

Together with Dean Takahashi, Swensen developed The Yale Model. It's an asset allocation strategy, designed to benefit from diversification, but with a few refinements. Most importantly, Swensen recognised he could take advantage of the endowment's lengthy time horizon to invest in illiquid assets, such as private equity and other alternative assets, and so enjoy higher returns in exchange for taking the liquidity risk that other shorter-term investors were unable to. He also tried to reduce risk further by frequently rebalancing the portfolio.

Did this work?

From 1985 to 2015, Yale's endowment generated an annual return of 14.4%. This not only trounced the 10.8% annual return generated by the S&P 500 over that period, but it also beat virtually every other institution. His success has been so great that four out of the top ten American university endowments are run by former students of his last year The Wall Street Journal estimated that Swensen and his protgs controlled more than 15% of total university endowment funds in America.

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What were his biggest successes?

In the late 1980s, Swensen consciously avoided investing in commercial property, which he considered overvalued.Then, after prices crashed during the early 1990s recession, he piled in. One of the most lucrative deals was one that guaranteed Yale a yield of 15%, nearly triple the main US interest rate at the time. Swensen also took advantage of the Asian crisis in the late 1990s to pick up high-yielding corporate bonds in companies such as Samsung at a sharp discount.

What other advice does he have for investors?

Swensen is a high-profile critic of the fund management industry, accusing it of offering poor value for money.He also argues that most retail investors don't have the timeor patience to make a success of picking their own stocks. Instead, he suggests that most individuals should build a diversified portfolio using low-cost index funds, bonds andreal estate.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri