Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Yale’s Swensen dies at 67
David Swensen, the Yale endowment fund’s famous chief executive and always a candidate for the “best investor in the world” title in any contest, died last Wednesday night US time (May 6 in Australia) at 67.
In his 36 years at the fund’s helm, Swensen achieved many first’s for the institutional investment industry. He pioneered the push into alternatives, with less reliance on traditional core portfolios of equities and fixed interest, and set the standard for inhouse teams to concentrate on asset classes they knew best.
Swensen studied as an economist at Yale and completed his PhD there in 1980. He started at the fund in 1985 after a period at Wall Street at Salomon Bros and Lehman Bros. Under his leadership, the fund grew from about $US1 billion to US$31.2 billion in 2020, bearing in mind that endowment funds have continuous university funding obligations.
According to ‘Chief Investment Officer’ newsletter, the so-called “Yale Model” was adopted by many other endowments and influenced the current trend of pension funds to move their money into private equity, hedge funds, timberland, and other alternative investments. Most recently, alts accounted for about 60 per cent of Yale’s portfolio.
CIO newsletter said: “He always had a contrarian streak, which sometimes landed him in trouble-such as his insistence on keeping fossil fuel investments. Swensen argued that it’s better to fight climate change by having a say in energy company policy as a shareholder than by simply divesting, which is in vogue throughout academia.
“In 2018, he added exposure to crypto currencies, by taking positions in two venture funds dealing in the digital denominations, one of the first major financial players to do so.”
“David served our university with distinction,” wrote the university’s president, Peter Salovey, in a statement announcing Swensen’s death. “He was an exceptional colleague, a dear friend, and a beloved mentor to many in our community.”
“He was a tremendous leader; he has helped so many other brilliant CIOs under his tutelage,” said Chris Ailman, investment chief at the California State Teachers’ Retirement System (CalSTRS). “It’s just a testament to his tremendous strengths. He wrote the book for our industry and it’s a sad day to see him go.” Swensen died after a battle with cancer.
