An Insider’s Perspective on the Yale Endowment

Former Yale investment committee chair Charles Ellis on David Swensen, crowding, and whether or not the Yale Model is broken.

charles ellisCharles Ellis, the founder of Greenwich Associates, chaired Yale’s investment committee from 1997 to 2008. These are his thoughts. 

On the Yale model. Is it broken? No, it’s not broken. Not at all. Is it sustainable? Every year or decade, every market is a different kind of challenge. Sustainable is a tricky word. Is the attitude sustainable? Is the discipline sustainable? Is the hard work sustainable? Absolutely. Will the model have the same kinds of consequences? Surely not, because the market environment is so different.

On David Swensen. He is a wonderful human being—brilliant, creative, and disciplined. He’s devoted to a sense of mission and what’s really right for increasing the capacity of the university. It sounds old fashioned, but it is what we most love and admire in leaders and people. He’s taught, educated, and trained a very large number of people who have gone off to do great things at other philanthropic institutions because they bought into the main message that David sells, which is, “If you’re going to be living a great life, you should be living your life with a great purpose. Find a great purpose.”

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On the conflation of Yale and endowment models. They are both probably an unfortunate simplification of a very complex investing process. I think it’s fair to call the Yale Investments Office the Yale model. I don’t think it’s fair to call it the endowment model because other endowments will have different purposes, different objectives, and different settings. Size being the most obvious difference. I do think it’s important to recognize that each institution should be thinking from fundamental ground zero. Back up to questions of what are its purposes? Where does the endowment fit into the whole financial dynamic, and then how it shouldn’t be operating.

On investment committees’ purpose. It’s almost parental support. You sometimes have to speak very, very bluntly and encouragingly, but a good governing board uses stern discipline with love all the time. Servant leadership is the real essence of fiduciary responsibility. You have to be very encouraging when things get rough and difficult but also remind them to put one foot in front of the other and don’t let it get out of control. 

On crowding. Are there more investment managers who are doing venture capital? Yes. More hedge funds than there used to be? Absolutely. Are there more bond and equity managers today? Of course. Are there more private equity managers? By a long shot. Are each larger than the ones that were around five, ten, fifteen, or twenty years ago? You bet. They’re all competing for discovery and exploitation of the profit opportunities in the particular category they’re working in. The crowding in that sense hurts mostly when you’re dealing with organizations that anybody can deal with or that are doing business with all kinds of customers, so they build up huge asset pools. David Swensen and Yale have concentrated on small, skilled, successful specialists that are hard to find and hard to keep focused.

On the future. It is harder today to do any asset class than it would have been 10 years ago and much harder than 20 years ago. Clearly, it will be harder 10 years from now than it is today.

—Alexandra DeLuca