Pioneering Portfolio Management Quotes

“Establishing and maintaining an unconventional investment profile requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom. Unless institutions maintain contrarian positions through difficult times, the resulting damage of buying high and selling low imposes severe financial and reputational costs on the institution.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Market participants willing to accept illiquidity achieve a significant edge in seeking high risk-adjusted returns. Because market players routinely overpay for liquidity, serious investors benefit by avoiding overpriced liquid securities and by embracing less liquid alternatives.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“most important distinction in the investment world does not separate individuals and institutions; the most important distinction divides those investors with the ability to make high quality active management decisions from those investors without active management expertise. Few institutions and even fewer individuals exhibit the ability and commit the resources to produce risk-adjusted excess returns.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Market studies focusing only on returns for securities in the United States miss important information. Recent academic work by Will Goetzmann and Philippe Jorion on investor experience in other countries reduces confidence in the long-run superiority of equity investing.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Table 4.1 Equities Generate Superior Returns in the Long Run Wealth Multiples for U.S. Asset Classes and Inflation December 1925–December 2005 Asset Class Multiple Inflation 11 times Treasury bills 18 times Treasury bonds 71 times Corporate bonds 100 times Large-capitalization stocks 2,658 times Small-capitalization stocks 13,706 times Source: Ibbotson Associates, Stocks, Bonds, Bills and Inflation, 2006 Year Book.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“A strong portfolio management framework rests on asset allocation decisions and incorporates a bias toward equity assets with an appropriate level of diversification. Since market timing actions generally prove unrewarding and always cause portfolios to deviate from desired characteristics, serious investors avoid market timing. Security selection decisions, while extremely difficult to execute with consistent success, contain the potential to add value to portfolio returns. Investors enhance opportunity for beating the market by pursuing excess returns where the degree of opportunity appears largest, by accepting reasonable degrees of illiquidity, and by maintaining a value orientation.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Emphasizing inefficiently priced asset classes with interesting active management opportunities increases the odds of investment success. Intelligent acceptance of illiquidity and a value orientation constitute a sensible, conservative approach to portfolio management.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“An inverse relationship exists between efficiency in asset pricing and appropriate degree of active management. Passive management strategies suit highly efficient markets, such as U.S. Treasury bonds, where market returns drive results and active management adds little or nothing. Active management strategies fit inefficient markets, such as private equity, where market returns contribute very little to ultimate results and investment selection provides the fundamental source of return.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Given the difficulties in timing markets and the challenges of security selection, such behavior provides a rational foundation for investment management. By avoiding extreme allocation shifts and holding diversified portfolios, investors cause asset allocation to account for the largest share of portfolio returns.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Many investors believe that a law of finance dictates that policy allocation decisions dominate portfolio returns, relegating market timing and security selection actions to secondary status. In a 2000 study, Roger Ibbotson and Paul Kaplan survey a number of articles on the contribution of asset allocation to investment returns. The authors note that “[o]n average, policy accounted for a little more than all of total return,” implying that security selection and market timing make no material contribution to returns.1 In another nod to the centrality of the asset-allocation decision, Ibbotson and Kaplan conclude that “. . . approximately 90 percent of the variability of a fund’s return across time is explained by the variability of policy returns.”2”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Investment returns stem from decisions regarding three tools of portfolio management: asset allocation, market timing, and security selection.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“The perpetual nature of colleges and universities makes endowment management one of the investment world’s most fascinating endeavors. Balancing the tension between preserving long-run asset purchasing power and providing substantial current operating support provides a rich set of challenges, posing problems unique to endowed educational institutions.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“The harsh reality of the negative-sum game dictates that, in aggregate, active managers lose to the market by the amount it costs to play in the form of management fees, trading commissions, and dealer spread. Wall Street’s share of the pie defines the amount of performance drag experienced by the would-be market beaters.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Most asset classes contain investment vehicles exhibiting some degree of agency risk, with corporate bonds representing an extreme case. Structural issues render corporate bonds hopelessly flawed as a portfolio alternative. Shareholder interests, with which company management generally identifies, diverge so dramatically from the goals of bondholders that lenders to companies must expect to end up on the wrong side of nearly every conflict.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Awareness of the breadth and seriousness of agency issues constitutes the first line of defense for fund managers. By evaluating each participant involved in investment activities with a skeptical attitude, fiduciaries increase the likelihood of avoiding or mitigating the most serious principal-agent conflicts.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“By operating in the institutional mainstream of short-horizon, uncontroversial opportunities, committee members and staff ensure unspectacular results, while missing potentially rewarding longer term contrarian plays.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“investment success requires sticking with positions made uncomfortable by their variance with popular opinion. Casual commitments invite casual reversal, exposing portfolio managers to the damaging whipsaw of buying high and selling low. Only with the confidence created by a strong decision-making process can investors sell mania-induced excess and buy despair-driven value.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“rich understanding of human psychology, a reasonable appreciation of financial theory, a deep awareness of history, and a broad exposure to current events all contribute to development of well-informed portfolio strategies.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“In fact, Yale’s return for the ten years ending June 30, 1998 amounted to 15.5 percent per annum, more than three full percentage points short of the S&P 500’s 18.6 percent result. The endowment’s deficit relative to the then-highest-performing asset class of domestic equity caused naysayers to question the wisdom of undertaking the difficult task of creating a well-diversified equity-oriented portfolio.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Finally, David Swensen has made it fun to work on investing for Yale—recruiting a team of exceptionally talented Yale graduates,”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“One secret in Yale’s success has been David Swensen’s ability to engage the committee in governance—and not in investment management. Contributing factors include: selection of committee members who are experienced, hard-working, and personally agreeable; extensive documentation of the due diligence devoted to preparing each investment decision; and full agreement on the evidence and reasoning behind the policy framework within which individual investment decisions will be made.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“If nothing is so useless as an “ivory tower” academic theory that goes unused, nothing is so very practical as the theory that works. At”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“The sixth secret is that, as Charles Darwin tried to explain, survival of the fittest is not determined by competitive strength, but rather by social desirability. There’s more money than certified talent in the world of investing, so outstanding investment managers have many choices because so many investors want to be their clients.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Equally important to Yale’s own success has been its extensive network of professional friendships throughout the world of investing. Among the very bright and well-connected, how they spend their time is always a matter of free choice because everyone has lots of alternatives about how they share insights and information—and with whom.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“The fifth secret may well be the most important: personal respect and affection. Visitors to Yale’s Investments Office are invariably impressed by the open architecture and informal “happy ship” climate that is almost as obvious as the disciplined intensity with which the staff work at their tasks and responsibilities. Positive professionals perform at their peak productivity and teams get better with low turnover.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Third, those bonds of professional respect and personal friendship extend out to the hundreds of key people working at Yale’s many investment managers and engage them in unusually beneficial ways,”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“Fourth, Swensen & Co. are extraordinarily thoughtful about and engaged with their client, Yale University.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“you will marvel at how very unusual Yale’s team of star performers is in combining rigor and objectivity with the personal warmth and trust that avoids “politics” or “positioning” and maximizes real listening for full understanding every day.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“carefully constructed, rigorously tested portfolio structure and decision-making process that are clearly defensive.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

“superior results over the long term, including: unorthodox and rational asset class allocations; pioneering and logical strategies within each asset class; unconventional and timely commitments to out-of-favor asset classes; original and disciplined selection of little known asset managers; training and empowerment of relatively young professionals; sensible and innovative structures of investment manager relationships; and disciplined leadership in the integration of endowment management with the overall financial management of the university.”
― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated