David Swenson on Personal Finance

Reviewed in Yale Alumni Magazine July/August 2005 by Marc Gunther '73, author of Faith and Fortune: The Quiet Revolution to Reform American Business, and a senior writer at Fortune magazine.

Swenson's guide for individual investors is called Unconventional Success: A Fundamental Approach to Personal Investment, and is published by the Free Press.

During Swenson's 20-years as chief investment officer at Yale, the endowment has risen from $1.3 billion 1985 to $14 billion today. His unique contribution is valued at $7.8 billion, namely, "the difference between the value of Yale's endowment today ... and waht its value would be had the money grown at an average rate of return for all college and university endowments." (p. 28). Moreover, measured against performance at other major research universities, Yale still comes out $4 billion ahead. Net investment retuns have averaged 16.1% per year (cf. Harvard at 14.9%).

Swenson is apalled at what he sees in the mutual fund industry, where investors are cherged large fees despite fact the fund returns typically fall below market average. He also directs his ire toward CEOs like Jack Welch who manage to obtain oversize perks and retirement benefits, and government officials who promote the privatization of Social Security.

For his part, Swenson has also been accused of amoral investing. GESO activist Ben Begleiter is reported to have commented: "they're doing a fabulous job of making money, but what are the social and environmental costs?", as the Unions have attacked his willingness to back (through a hedge fund), for example, in an environmentally dangerous water extraction scheme from the San Luis Valley of Colorodo.

Swenson was paid $1 million in 2002-2003, far less than his private sector counterparts (though he's still the University's highest paid employee). Harvard investment directors earn 15 to 20 times as much. Hedge fund managers can earn as much as $100 million in a good year. He became Yale's endowment manager at age 31, after working 6 years in corporate finance. "it wasn't the right place for me," he's quoted as saying, "because the end result is that peple are tyring to make lots of money for themselves. That just doesn't suit me."