Ivy League Investors

Yale University, where I teach, has entrusted its endowment portfolio to one man, David Swensen, for over 20 years. During this period, the portfolio has grown from just over $1 billion to $18 billion – an average return of more than 16% a year, which appears to be the highest of any major university. And it shows no signs of diminishing: in the latest fiscal year ending in June, the return was 22.9%.

Presidents of Yale have come and gone, but Swensen stays on. He has done more for the university than any president, or anyone else. In a university, ideas count more than money, but $18 billion dollars can create an environment for many new ideas. With 11,500 students, that is more than $1.5 million per student (not including the university’s buildings and art collection, each worth many billions of dollars more).

How did this happen? How did Swensen make so much money? Everyone is wondering – not least those of us at Yale.

After all, many people here have been teaching the “efficient markets hypothesis” that financial markets around the world have become so competitive that it is impossible to make more than a normal return from investing. Anyone who beats the market must simply be lucky.