Pioneering Portfolio Management by David Swensen

Today I want to share a book that changed my perspective on portfolio management: "Pioneering Portfolio Management" by David F. Swensen.

🖊️ David F. Swensen, Yale University's former Chief Investment Officer (1985-2021) was a brilliant investor. Swensen's remarkable investment results led to Yale's endowment fund to grow from just over $1B in 1985 to $42.3B in 2021. Funds flowing to the university increased significantly and strongly improved Yale's financial position to sustain top-tier education.

My 🔑 takeaways:

The institutional money management industry is often heavily biased by survivorship, where only strong funds make the data cut. This leads to a great overestimation of active management results. Therefore realizing results above the benchmark is much tougher than it looks. Because of this, active managers are often scared of underperforming and end up making safer, less innovative bets, to keep the sum of total assets under management as large as possible. Resulting in the investment game, to turn into a marketing game.

Swensen therefore truly "pioneered" portfolio management by introducing alternative illiquid asset classes to the portfolio such as Private Equity, Venture Capital, or even Timber. With the long-term vision, not being afraid to underperform in the short-term, Yale saw huge positive results in the past decades. Swensen also showed that temperament, independent thinking and integrity are of great importance, as one single mistake could wipe out a long streak of successes.

Therefore active portfolio management is only better than the passive variant when one "dares" to create their own path and when managers have their visions aligned with the long-term goal of the fund. Only then does doing more actually lead to more.

Final Word

"When you look at the results on an after-fee, after-tax basis, over reasonably long periods of time, there's almost no chance that you end up beating the index fund." - David F. Swensen

These were of course my key takeaways from the book, however there is so much covered that every reader will have their own unique experience, which I am very curious to hear about!