Posts Tagged ‘David Swensen’
David Swensen Interview - Part 2
Friday, June 5th, 2009
David Swensen, recently appeared on Consuelo Mack’s WealthTrack for a two part interview. You may catch up on the Part 1 of the interview here. For a transcript of Part 1, click here.
In the second part of the interview, Swensen, renowned Chief Investment Officer of Yale’s $20 billion dollar endowment discusses the strategy behind the fund’s extraordinary long term track record, recent criticisms of the “Yale model” and his investment recommendations for individual investors.
If you would like to listen to the interview while you work, click play for the audio here:
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To view Part 2 the interview click here or on the image below:
Tags: 05 Mp3, 09 Mp3, 22 Mp3, Chief Investment Officer, Consuelo Mack, David Swensen, Dollar Endowment, Individual Investors, Investment Recommendations, Wealthtrack, Yale Model
Posted in Markets | No Comments »
David Swensen Interview (May 22, 2009)
Wednesday, May 27th, 2009
David Swensen, legendary CIO of the Yale Endowment appeared in a full length interview on Consuelo Mack’s Wealthtrack on May 22. 2009. In it, he discusses among other things, his updated recommendations for individual investors. Swensen reminds us of Jeremy Grantham, a dedicated practitioner who could care less about the investment spotlight, and would most likely prefer to be left alone to do what he loves best. Investing.
Click play to watch. For a transcript of Part 1, click here.
This is an enlightening interview, as Swensen shares his candid views on investing, and what is required for investment success.
Here are Swensen’s recommendations for individual investors. Canadian investors may want to substitute for the Canada equity bias on the US stocks allocation. Substitute for Canada Bonds and Canada Real Return Bonds to reduce the currency risk.
30% US stocks
15% treasury bonds
15% TIPS
now 15% REITs
15% foreign developed equities
now 10% emerging markets
Swensen has reduced the REITs allocation by 5% and raised the Emerging Markets allocation from 5% to 10%. By the way, Swensen made these long view asset allocation adjustments at the beginning of the year, and not last week, so given that emerging markets are outperforming G7 country equity markets, his call early in the year, to individual investors, to overweight them was reliable.
Swensen remarked that diversification fails during crises - it did in 1987, 1998 and last year. He also discusses the idea that while he is religiously a bottom-up investor, crises force you to look at top-down considerations.
This is a must see interview and Swensen provides much food for thought in this meaty interview.
Tags: Active Management, Asset Allocation, Asset Classes, Canada, Canada Bonds, Canada Equity, Canadian Investors, Candid Views, capitalism, Consuelo Mack, Currency Risk, David Swensen, Diversification, Emerging Markets, Endowments, Etps, Financial Crisis, Food For Thought, Hedge Funds, Individual Investors, Investment Horizon, Investment Success, Jeremy Grantham, Length Interview, Long Periods Of Time, Real Return Bonds, Reits, Roger Nusbaum, Some Critical Remarks, Stocks Bonds, Treasuries, Treasury Bonds, Wealthtrack, Yale Endowment
Posted in Emerging Markets, Markets | No Comments »
David Swensen: How to Sleep Soundly
Monday, March 16th, 2009
Yale’s Alumni Magazine for March/April 2009, features Marc Gunther’s interview with Yale Endowment’s Super-Investor, David Swensen, and details some of Swensen’s key advice to investors about portfolio management. It is a must read. Here is an excerpt.
In just under a quarter-century as Yale’s chief investment officer, David Swensen ‘80PhD has generated Bernard Madoff-like returns — except that Swensen made his money honestly. Under his leadership, Yale’s endowment has generated an astonishing 20 consecutive years of positive returns, from 1988 to 2008.
Yale Alumni Magazine: Has it been a difficult time for you?
Swensen: In some ways, yes. I absolutely love the idea of producing ever-increasing levels of support for Yale. Looking ahead to the next few years, that’s not going to be in the cards. That’s a difficult reality to deal with.
But in terms of the day-to-day work, managing through this economic and financial crisis is absolutely fascinating. It’s exhausting, but fascinating.
Y: It may be fascinating to you, but it’s discouraging for those of us who have watched our 401(k) values plummet. Given all the turmoil and uncertainty, what should individual investors do?
S: If an individual investor followed the program I outlined in Unconventional Success [see box], they probably did reasonably well, through the crisis, thus far. They’d have 15 percent of their assets in U.S. Treasury bonds. They’d have another 15 percent in U.S. Treasury inflation-protected securities. Those two asset classes have performed well.
Of course, the other 70 percent of assets are in equities, which have not done well. With all assets, I recommend that people invest in index funds because they’re transparent, understandable, and low-cost. So, the equity holdings have gone down step-by-step with the declines in the market.
I recommend that investors rebalance.
But I also recommend that investors rebalance. Rebalancing is even more important amidst these huge declines in the stock market because it presents a great opportunity. People can sell the Treasury securities that have appreciated dramatically to bring their allocation to the 15 percent target, and they can redeploy those funds into domestic equities and foreign equities and emerging market equities and real estate investment trusts, all of which are now much cheaper, and therefore have higher prospective returns.
Y: Explain this idea of asset allocation, please.
S: Asset allocation is the tool that you use to determine the risk and return characteristics of your portfolio. It’s overwhelmingly important in terms of the results you achieve. In fact, studies show that asset allocation is responsible for more than 100 percent of the positive returns generated by investors.
Y: How can that be?
S: It’s because the other two factors, security selection and market timing, are a net negative. That’s not surprising. They’re what economists would call zero-sum games. If somebody wins by buying Microsoft, then there has to be a loser on the other side who sold Microsoft. If it were free to trade Microsoft, the amount by which the winner wins would equal the amount by which the loser loses. But it’s not free. It costs money. It costs money in the form of market impact and commissions if you’re trading for your own account, and it costs money in terms of paying fancy fees if you are relying upon an investment advisor or mutual fund to make these security-specific decisions. For the community as a whole, all those fees are a drag on returns.
That’s why the most sensible approach is to come up with specific asset allocation targets that you can implement with low-cost, passively managed index funds and rebalance regularly. You’ll end up beating the overwhelming majority of participants in the financial markets.
Y: So people should not be afraid of stocks now?
S: Not only should they not be afraid, they should be enthusiastic. One of the great ironies is that if you had talked to the average investor 18 months ago, he or she would have thought it was a pretty good idea to buy stocks. In recent months, the same investors despair about their portfolio and are fearful about putting money into the equity market.
That’s 180 degrees wrong. They should have been cautious 18 months ago, when prices were much higher than they are now. They should be enthusiastic today.
Y: That runs counter to human nature.
S: That’s one of the really tricky things about the investment world. It’s very different from a lot of things we deal with, day in and day out. If you talk to a businessman, a businessman is going to feed the winners and kill the losers. But in the investment world, when you’ve got a winner you should be suspicious about what’s next. And if you’ve got a loser, you should be hopeful — although not naively hopeful.
To read the whole interview, plus the additional material, click here. (make sure you read the items highlighted in blue on the right hand side)
Tags: Asset Classes, Bernard Madoff, Chief Investment Officer, David Swensen, Equity Holdings, Index Funds, Individual Investor, Individual Investors, Inflation Protected Securities, Marc Gunther, Portfolio Management, Quarter Century, Rebalance, Rebalancing, Treasury Inflation Protected Securities, U S Treasury, U S Treasury Bonds, Unconventional Success, Yale Alumni Magazine, Yale Endowment
Posted in Bonds, Emerging Markets, Markets, Oil and Gas | No Comments »
David Swensen on Charlie Rose
Thursday, January 29th, 2009
David Swensen, legendary portfolio manager and CIO of the Yale Endowment speaks to Charlie Rose in a rare 15-minute interview. The first interview features Sen. Chuck Schumer. David Swensen follows. To get to David Swensen, advance the video using the arrow indicator to 38:40 mins.
Tags: Arrow, Charlie Rose, Chuck Schumer, Cio, David Rose, David Swensen, Minute Interview, Portfolio Manager, Rose David, Yale Endowment
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“Swap” Inventor Blames Regulators for Financial Crisis
Monday, January 5th, 2009
David Swensen, of Yale University Endowment investment management fame discusses the current state of the market and derivatives trading. Swensen is credited with the invention of derivatives now commonly referred to as “swaps.”
Kim Clark from US News and World Report writes today:
The Wall Street trader who invented the swap says he’s dismayed by how other traders have so abused his invention and the “complete and utter failure” of regulators to prevent the abuse that led to the current financial meltdown.
David Swensen, now the legendary manager of Yale University’s endowment funds, says swaps and other financial derivatives ought to be traded on an exchange and hedge funds that get big enough to pose risks to the financial system should be regulated.
“I don’t think it is the tool that is the problem,” he says of swaps. “I think it is the fact that our regulatory authorities aren’t doing their jobs” that allowed derivative trading to balloon dangerously. The bursting of that balloon is one of the main reasons for the Wall Street credit crunch.
In the late 1970s, David Swensen took his new Yale doctorate in economics to Wall Street. While working for Salomon Bros. in the early 1980s, he figured out a way for IBM and the World Bank to trade, or swap, payments in different currencies. It was a key development in a larger Wall Street trend to create and trade new financial “derivatives”–or instruments whose value is derived from an underlying asset or income stream. As a part of this trend, musician David Bowie found investors willing to pay him upfront cash in return for the right to collect future earnings on his hit songs, for example. And an entire industry arose to create and trade derivatives based on the mortgage payments of homeowners.
Tags: Credit Crunch, Current State, David Swensen, Derivative Trading, Derivatives Trading, Endowment Funds, Financial Derivatives, Financial Meltdown, Hedge Funds, Hit Songs, Income Stream, Key Development, Kim Clark, Mortgage Payments, Regulatory Authorities, Salomon Bros, University Endowment, Utter Failure, Wall Street Trader, Yale Endowment, Yale University
Posted in Credit Markets, Markets | No Comments »
Yale’s Swensen: “Extraordinary Opportunities in Distressed Debt
Monday, January 5th, 2009
Legendary Yale University Endowment investor, David Swensen, says there are extraordinary investment opportunities in the credit world and is “pursuing a recovery” by acquiring distressed debt.
“There are some really extraordinary opportunities in the credit world,” said David Swensen, the school’s investment chief, in a phone interview from his office at the New Haven, Connecticut, university. “Everything, from bank loans to investment-grade bonds to less-than-investment grade bonds, is priced at really extraordinarily cheap levels.”
Among Swensen’s core principles identified in “Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment” (Free Press, 408 pages, $35) is the importance of diversifying holdings while focusing on equities. In a recession, the advantages of diversification get overwhelmed by investors’ selling equities in favor of U.S. Treasury bonds in a “flight to quality,” he said.
“When you have a market in which any type of equity exposure is being punished, it’s going to hurt long-term investors,” he said.
In the current environment, distressed corporate securities can produce “equity-like” returns, Swensen said.
“You want to make sure you’re with companies that have the ability to survive in a really tough economic environment” he said, declining to name any of the companies.
Until financial institutions resume lending, the economy will remain stagnant, Swensen said.
“I don’t think the Fed or the administration has figured out how to fix credit markets,” he said. “We are going to experience economic and financial stress as long as the credit markets are broken and it’s not until we start seeing the credit markets functioning properly will we be able to see a path to economic recovery.”
Swensen advocates federal guarantees for deposits in money- market funds as a way to encourage investment in the vehicles that buy corporate debt.
Source: Bloomberg.com, January 2, 2009
Tags: Advantages Of Diversification, Bank Loans, Connecticut University, Corporate Securities, Credit Markets, David Swensen, Distressed Debt, Equity Exposure, ETF, Federal Guarantees, Financial Stress, Institutional Investment, Investment Grade Bonds, Money Market Funds, New Haven Connecticut, Term Investors, U S Treasury, U S Treasury Bonds, Unconventional Approach, University Endowment, Yale Endowment, Yale University
Posted in Bonds, Credit Markets, Economy, Markets | No Comments »
