Is Yale's Endowment the New Tiger Management?

From aiCIO Magazine's April Issue: Julian Robertson’s Tiger Cubs started some of the aughts’ most impressive hedge funds. Are David Swensen’s Yale Pups, increasingly in control of other foundations and endowments, the current decade’s equivalent?

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Once every few months, in the halls of Yale’s residential colleges, upperclassmen file into a room filled with beer. Ales and lagers, dark and light; the plethora of choice could overwhelm the stoutest of drinkers. The room—perhaps a mahogany-lined ex-library or a muted dining room—is always too small for the group of eager seniors. They arrive early. 

This is not a frat party. This is not a Winter Formal, nor a Skull & Bones ritual. No, this is a tradition that has endured for over three decades at Berkeley Hall—one of the 12 houses that hold Yale’s 5,300 undergraduates—and, more recently, has been extended to at least five other residences. The bright-eyed Yalies, if they are old enough and lucky enough to gain access, are here for one reason. 

David Swensen, world-renowned investor, is going to teach them how to taste beer.


The Yale investment office is the most prominent source of endowment and foundation talent in America today, and the question of how it produces not only talent, but talent that largely stays put in the endowment and foundation world, has more to do with Swensen’s frequent beer tastings than it may appear. From Los Angeles (Randy Kim, Conrad N. Hilton Foundation) to Maine (Paula Volent, Bowdoin) to Princeton (Andrew Golden, Princeton University Investment Company) to Boston (Seth Alexander, MIT Investment Management Company), Yale investment alumni now run some of the nation’s largest nonprofit capital pools. This is no coincidence.

If there is a precedent for such a successful diaspora, it is from the opposite side of the spectrum: Julian Robertson’s hedge fund behemoth Tiger Management, which starting in the 1990s saw alumni start some of the most successful hedge fund start-ups. (The men who left Robinson were known as Tiger Cubs; the Yale offshoots, due to its bulldog mascot, are herewith christened Pups.) While they operate in the hedge fund world, the Cubs—such as Lone Pine Capital’s Stephen Mandel and Viking Global Investors’ Andreas Halvorsen—are the epitome of one firm spawning talent that came to dominate the industry in which they operate. This comparison—as well as a comparison of Yale’s endowment to that of its Ivy cousin Harvard—is more than a simple thought exercise. It is, if taken correctly, a roadmap to establishing the world’s most successful asset management companies. 

The first thing to know: Yale Pups do not bark. One lesson soon learned when dealing with the Yale investment office and its alumni is that while they may bless or condemn a story, they will never comment on the record about it. Discretion is taken to new levels within this cloistered cohort. All those who agreed to speak for this article did so on the condition of anonymity. To a man and woman, the Yale Pups are fiercely loyal to their former leader—and this loyalty manifests itself first and foremost in the mantra of do not speak, let alone speak ill, of David Swensen. Swenson himself is no shrinking violet. He is supremely confident in his opinions and all too inclined to call a spade a bloody shovel: he is well remembered for his brutal dismissal of fund-of-funds as a “cancer on institutional investment.” He is also a highly demanding boss, but loyalty to him seems to know few bounds. Indeed, time and again, it became clear during the writing of this story that it was the example of David Swensen—the man who took an 80% pay cut in the early 1980s to leave Wall Street and join the then-$1 billion endowment, a man who has stayed with that institution for 30 years, a man who publicly and privately espouses the value of nonprofit investing, of service to a community, and of there being more to life than dollars in a bank account—that kept many of his former employees from chasing a paycheck at the many funds that would have paid dearly to have them. 

The question, then, is how Swensen inspires such loyalty—and what this means for those wishing to emulate his success. 



The Yale investment office of today resembles the open-architecture spaces populating Silicon Valley start-ups more than the silo-driven culture of traditional investment houses. While Swensen has a personal office, he barely ever uses it, according to multiple people who know about these things. He instead chooses to sit within his team on the “trading floor”—not an actual Wall Street-style floor, since Yale is a manager-of-managers, but a communal workspace where everyone from interns to Swensen’s longtime number two, Dean Takahashi, sits. Inclusiveness is the word of the day—every day. Even interns, still in college, are often allowed to attend manager meetings. 

Unlike at many other universities, the investment office is located immediately next to the undergraduate campus. This did not happen by chance. Students scamper by the building daily—it is on the favored route between the undergraduate and business schools—and the building is shared with the Yale career-services office. This is not a coincidence. Swensen, for years, has reached into the Yale undergraduate and graduate community for talent. Along with Takahashi, he continues to lead an undergraduate seminar—Economics 450a, Investment Analysis—that meets once a week for 150 minutes. The summary of the course reads like a budding endowment manager’s dream: “Examination of investment management theory and practice. Discussion of asset allocation, investment strategy, and manager selection from the perspective of an institutional investor. Focus on the degree of market efficiency and opportunity for generating attractive returns—taught by Dean Takahashi and David Swensen.” Unlike every other seminar in the economics department, it requires no prerequisites. It does, however, require an essay to even be considered for acceptance. Like his less-intense beer (and wine) tastings, it is always oversubscribed. Swensen and Takahashi have the final say as to who the lucky ones will be, and it is common for a seminar standout to be invited to intern—and, potentially, eventually work full time—at the Yale investment office. 

Indeed, Swensen himself is a product of Yale. Having completed his PhD in 1980—entitled A Model for Valuation of Corporate Bonds—he went south to Wall Street. His dissertation advisors, James Tobin and William Brainard, called after five years, reminding him that he had promised to spend only two years in the banking world before returning to Yale. Despite his slightly extended stay, Swensen decided to return, famously taking an 80% pay cut to run the school’s $1 billion endowment. Twenty-seven years and $18.4 billion later (the endowment was valued at $19.4 billion as of June 2011), Swensen is the Dean of the asset-owning world. 

In those 27 years, Swensen’s life and reputation have become so intertwined with the institution he serves that it is difficult to tell where the personal ends and the public begins. In addition to teaching the qualities of beer and investing, he holds numerous fundraisers for the benefit of the school community. A fierce competitor on the tennis court himself, he holds an annual August fundraiser around New Haven’s professional tennis tournament, the beneficiary being Yale’s Teach for America candidates who each need $10,000 worth of training before heading into the field. (In each of the past six years, this event has raised over $1 million.) He organizes an investment-office softball team each year, which competes against other segments of the school’s administration. It even has been suggested by many—and refused by Swensen himself—that a new residential college be named after him. The justification? If you calculate the added value of Swensen and his team during his reign, he is, at above $7 billion, far and away the biggest benefactor in Yale’s history. 

Taking the contours of his life into account, it becomes clear that through both selection bias and example setting, Swensen has established an organization that could really only produce endowment and foundation talent. By way of recruiting new employees and then leading his charges forward, the Yale investment office is populated with devotees to a cause. In short, if they wanted to work at a fund of funds or hedge fund, the Yale Pups would have found their way there long before they ever entered the endowment’s office doors.

If Yale’s investment team resembles Tiger Management in its consistency—both in staying within its leader’s industry and success post-departure—it most certainly does not resemble Harvard’s endowment management company. For one, the Harvard endowment is much larger in staff, even relative to its materially larger asset base. Instead of 20 employees at the $19 billion Yale fund, the Harvard Management Company’s (HMC) $27 billion is run by approximately 150 people. It is also managed under a different structure—something more akin to a Canadian pension, with its mix of internal and external management of assets, than a Yale fund-of-funds model. Additionally, while it may seem inconsequential by comparison, the HMC offices are in downtown Boston, far from the school’s Harvard Yard hub.  

These differences—combined with turnover at the top, which has seen four CEOs (Jack Meyer, Robert Kaplan, Mohamed El-Erian, and Jane Mendillo) at the helm since 2005—have been the precursor to a different form of exodus at Harvard. Starting in the late 1990s and continuing to this day, managers tend to leave Harvard not for other endowments or foundations, but for the far more lucrative world of hedge fund investing. (The pace as of now, admittedly, is slower than it was when Meyer and his bond team moved en masse in 2005 to start Boston-based Convexity Capital, seeded with Harvard money.)  

Money is clearly an issue: Meyer had petitioned the fund’s board to allow it to gather outside assets, which would have allowed internal managers to garner more compensation. When this request was denied, it hastened the exit of internal talent. University meddling is another likely culprit: Few are those who have not heard of then-Harvard President Larry Summers imposing an ultimately disastrous interest-rate swap on the university. It is unthinkable that a similar trade would be forced upon Swensen’s Yale. But even that’s not it. Talking to ex-Harvard managers, one never gets the sense that this is a higher calling. Unlike the Yale Pups, Harvard’s offspring see themselves as money managers first, endowment managers second. 


In the mid-1990s, a Swensen directive spread through the Yale endowment: Read Jonathan Weiner’s Pulitzer Prize-winning Beak of the Finch. The book, now a classic, focused on the work of two Princeton ecologists—Peter and Rosemary Grant—as they spent decades detailing the minutiae of finch weight and beak length near the Galapagos Islands. Environmental factors, they found, led to rapid changes in the finch population within a matter of years, not centuries or millennia, leading the couple to conclude that evolution could happen in a much more compressed timeframe than was presumed by Charles Darwin.  

He assigned the book, Pups say, to further the “fiercely intellectually curious environment” within the fund but, intended or not, another meaning was at play: Evolution has occurred nearly as quickly within the endowment sector, and the fittest to survive has been Swensen’s Yale. Before the 1980s, donor-heavy boards largely directed endowment investing and endowment holdings were largely what one would expect—bonds and a few equities. 

Less than 30 years later, the Yale endowment, at its core, has evolved into the most successful fund of funds on earth. Swensen’s philosophy is perhaps the most discussed, and accepted, investment thesis of the last three decades. By extension, the Yale investment office is often held up as the benchmark for asset management, circa 2012; indeed, there is a long-running Harvard Business School case study on the Yale endowment, its history, structure, asset allocation, manager selection practices, and risk management principles. 

What is often missed in these discussions is this: Yale is an asset manager without 50% of a typical asset manager’s responsibilities. The staff’s job is to design a portfolio, via external managers, for its asset base. It does not have to concern itself with raising that asset base, and it does not concern itself with management fees garnered by growing this asset base. They are, in almost every respect, a “pure” manager of assets. “The goal, really, is to maximize returns while managing liquidity,” one Yale Pup told me. It is this simplicity, many of the Pups say, that is part of the draw to the Yale endowment—and to endowment and foundation management in general. 

Thus, the Yale Pups are Tiger Cubs with a dose of altruism—and a yearning for asset management purity. Hedge fund managers, despite the lambasting of some, can provide value to the end users of the financial system—namely, their limited partners. However, few would argue that this is their driving motivation.  

This is what separates the Pups from the Cubs—and from the Harvard offshoots as well. A fund of funds would pay substantially to have an Anne Martin or a Randy Kim join their team, and with Yale’s unrivaled record as a return-generator, there is no question that there is an appetite for such talent. Just as easy, and perhaps even more lucrative, would be for the Pups to start their own fund of funds with the Yale imprimatur and an accepting fundraising environment. But instead, they do not do this.  

Why not? Two thousand, two hundred forty of these words boiled into one: Swensen.