David Swensen

[5/26/09] Consuelo Mack interview with David Swensen

[11/26/07] Wisdom from the World's Second-Best Investor

[10/24/07] Yale University has long been renowned for its prowess in the classroom, but it's certainly no slouch in the investing realm, either. In fact, its giant $22.5 billion endowment notched an impressive 28% gain in its most recent fiscal year ending June 2007. And over the past decade, it returned nearly 18% annually, the best showing of any college endowment in the nation. By contrast, the S&P 500 was up only 7% over that period.

The brain behind it all is longtime Yale endowment chief David Swensen. Swensen's route to investment success at Yale has been unconventional (hence the aptly named title of his most-recent book, Unconventional Success). When Yale appointed him to his post in 1985, most college endowments, including Yale's, stuck to a plain-vanilla mix of stocks and bonds. But Swensen believed Yale's portfolio wasn't diversified enough and eventually built stakes in what are now known as alternative investments--private equity (investments in companies that aren't public), hedge funds, and real assets, such as timber, real estate, and oil--that don't move in step with the stock market or each other. Broadening the portfolio beyond stocks and bonds would moderate volatility, Swensen thought. And by mining less-followed areas, he and his analysts would have a better shot at unearthing undiscovered gems.

That plan of attack couldn't be more different than the one advocated by financial planners.

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IN RECENT YEARS investors have eyed burgeoning Ivy League endowments like high school seniors applying to Harvard and Yale with weak grade point averages, low SAT scores and no extracurricular activities: zero chance of getting in. Can you blame them for being envious? In the year that ended June 2006, Yale notched a 22.9% return for a gain of $3.4 billion. Even more impressive is its consistency. Over the past 10 years, which included the market meltdown of 2000 to 2002, Yale has had annualized gains of 17.2%. Harvard, meanwhile, earned a 16.7% return in fiscal 2006 and boasts a 10-year average of over 15%. Of course, Harvard and Yale have long enjoyed formidable advantages, starting with immense wealth and prestige. Even other institutions, many with endowments in the billions of dollars, have been hard-pressed to keep up, let alone individual investors.

Surprisingly, that may be beginning to change. We've taken a close look at these endowments and at the new investment vehicles now available to the rest of us. Our conclusion: Even average investors can mimic Harvard or Yale in their portfolio, with access to some of the Ivy League's most exclusive and esoteric asset classes. We'll show you how and illustrate our method with a model portfolio.