Yale’s legendary endowment chief, David Swensen, has received accolades for his pioneering work in the field of endowment management. His idea of eschewing highly competitive and more efficient asset classes, and moving into asset classes where there is large dispersion between the most successful investors and everyone else, was truly groundbreaking.
David created what became known as the Yale model, and built diversified portfolios with unusually large exposures to private investments — venture capital and private equity — as well as what he called absolute return investments. Importantly, he was not only willing to travel apart from the herd; he actually embraced it. He also espoused a spending model that included a smoothing function to avoid large swings in endowment contributions to the Yale budget. With these insights, David effectively pioneered the endowment model of investing that institutional investors everywhere follow today.