The Most Talented Portfolio Manager
The man behind that investment success is David Swensen, one of the most gifted investors in the world. He’s made an average 16 percent annual return over 21 years — better than any portfolio manager at any other university. Nobody has numbers that good. Not at Harvard, Princeton, Stanford, or any foundation or pension fund; Swensen consistently beats them all.
Yale pays Swensen $1.3 million a year. That sounds impressive until you realize that, with his track record, if Swensen started his own hedge fund, he could earn $50 million to $100 million a year.
I was fascinated by NPR’s story on David Swensen. He earned a Ph.D. from Yale, then went to work on Wall Street for a few years, but returned to Yale to run their investment office, turning his back on unfathomable riches. Why would anyone walk away from so much money? “I had a great time on Wall Street, but it didn’t satisfy my soul.”
Sounds like he’s discovered what true riches are.
Oh, and BTW, what’s one of his greatest passions? Warning people away from the sham that is the mutual fund industry!
He says for-profit mutual funds have an inherent conflict of interest. They make money by charging fees that suck profits away from investors in the funds. In fact, over time — when you factor in the fees, taxes and other costs — he says your odds of beating the market in an actively managed fund are less than one in 100.
Here’s another quote from Swensen in Yale’s Alumni Magazine Article about him:
“There’s an inverse relationship between size and performance. Period,” Swensen says. The SEC has permitted 12b-1 fees even though they are clearly not in the interests of investors. Swensen writes: “Shame on the SEC for allowing 12b-1 fees, shame on the [fund] directors for approving them, and shame on the mutual funds for assessing them.” Brokers, who charge sales commissions for the mutual funds they offer, only stack the deck further against their unsophisticated clients. “Sensible investors avoid the brokerage community,” he writes. [emphasis mine]
Good stuff. Check out the full articles.