What Do You Think of Swensen’s Overall Investment Philosophy?

1. What do you think of Swensen’s overall investment philosophy? How has the strategy performed?

Swensen’s investment philosophy includes believing in equity, diversified portfolio, seeking opportunities in less efficient market, utilizing outside managers and effective incentives. Strong result, which was 22.9% returns in 2006, above the average of the peer, justified the effectiveness of Swensen’s strategy.

1. How has the Investment Office selected, compensated, and controlled private equity fund managers? What explains the differences between its strategy in private equity with that in other asset classes (e.g. real estate)?  

Investment office selected private equity fund managers by utilizing a lengthy and probing analysis of abilities, comparative advantages, performance records and reputation. Strong alignment of incentive were between Yale and external managers through innovative relationship and fee structure. Placing a premium on building long-term relationships with a limited number of premier organizations, and taking a value-added approach to investing. Apart from effective mutual benefit relationship, becoming the most important client of the fund is Yale’s key strategy to control the fund managers.

Private equity were all handled externally, while the bond portfolio was managed internally.  

1. How has the Investment Office decided when to make private equity investments? What explains the differences between the strategy in private equity with that in other asset classes (e.g. real estate)?

For international investment, Yale eschewed the typical strategy of investing in large funds devoted to buyouts in Europe and Asia by investing in a number of the new very large global private equity funds that were being sponsored by established and well-regarded U.S firms. For domestic private equity investment, Yale relied on external fund managers’ judgement.

1. How has the Investment Office made international private equity investments? What explains the differences between the performance of its international and domestic private equity investments?

For international investment, Yale eschewed the typical strategy of investing in large funds devoted to buyouts in Europe and Asia by investing in a number of the new very large global private equity funds that were being sponsored by established and well-regarded U.S firms. For domestic private equity investment, Yale relied on external fund managers’ judgement.

1. How is the private equity industry changing? How could Swensen’s private equity strategy go wrong?

First was the scale on which private equity groups operated. The second major change involved the new classes of investors active in the industry.

1. Should David Swensen change his private equity strategy?

Swensen should not change his strategy for four rationales: 1) Historical success record 2) Strong relationship with key managers 3) Considerable understanding of private equity process 4) Important benefits to being in the private equity market at all times.