Swensen is a legend at Yale, and its highest-paid employee. He’s the money manager who for 34 years has been in charge of the endowment—the multibillion-dollar pool of money, seeded and fed by donations, that comprises Yale’s fortune.
The endowment was worth $1 billion in 1985 when Swensen started at Yale; today it’s $29.4 billion. Other schools—including Bowdoin, MIT, Princeton, Stanford, and Penn, whose endowment heads all once worked for Swensen—have seen their wealth multiply.
The massive size of the top universities’ purses has become a flashpoint in a broader argument about elitism and inequality. Politicians have begun to question the tax-free status universities have long enjoyed: The 2017 tax law signed by President Trump included a new endowment tax, and Yale’s home state of Connecticut a few years ago weighed something similar. All this, too, is part of the world the Yale model helped create.
He first came to Yale as a grad student in economics in 1975, after graduating from the University of Wisconsin in his hometown of River Falls. His father was a chemistry professor and dean at UWRF; his mother, after raising six children, would become a Lutheran minister. One of Swensen’s dissertation advisers at Yale was James Tobin, who’d been a top economic adviser to the Kennedy administration and would soon win a Nobel Prize.
He got to know an investment banker at Salomon Brothers named Gene Dattel, a Yale alum who suggested that Swensen work there for a few years to get a firsthand feel for the topic. In 1981 he helped structure the world’s first swap agreement, allowing IBM Corp. to hedge its exposure to Swiss francs and German marks in a deal with the World Bank. After three years, Swensen left to head the swaps desk at Lehman Brothers.
Swensen took the job at Yale, and with it an 80% pay cut. He started on April 1, 1985. In 1986, a Yale College and School of Management graduate named Dean Takahashi joined the investment office, quickly becoming Swensen’s sounding board and trusted deputy.
Swenson invested in San Francisco’s Farallon Capital Management LLC, founded by Tom Steyer, Yale class of ’79. Farallon started out in merger arbitrage, then moved into distressed debt, buying up, among other things, the largest bank in Indonesia. By the time Steyer left Farallon in 2012 to devote himself to liberal activism—he’s now running for president—it was one of the largest hedge funds in the world.
Swensen’s legend was made with the popping of the dot-com bubble. During Yale’s fiscal year ended in June 2000, when the Nasdaq hit the era’s peak, the endowment’s portfolio returned 41%. Even more impressively, over the next 12 months as stocks collapsed, Yale’s assiduously diversified portfolio returned a healthy 9.2%.
William Helman, a general partner at Greylock Partners, says that when the top VC firm decided to open to a few new clients in the 1990s it sought out Yale in part because of an alumni connection at the firm. Yale’s $2.7 million bet on Greylock-backed LinkedIn Corp. generated an $84.4 million gain when the company went public in 2011. Swensen seeded Yale alum and former investment-office staffer Lei Zhang with $20 million to start Hillhouse Capital Management in 2005, which has backed tech startups such as JD.com in China. Hillhouse earned $2 billion for the university.more » « less