The Economist: The Legacy of An Influential Investor(2)
The third pillar is the importance of a contrarian mindset.
Mr Swensen had a chance early on to demonstrate his.
Following the stockmarket crash in October 1987, he had loaded up on company shares, which had become much cheaper, by selling bonds, which had risen in price.
This rebalancing was in line with the fund's agreed policy.
But set against the prevailing market gloom, it looked rash.
His investment committee was worried.
One member warned that there would be "hell to pay" if Yale got it wrong.
But Mr Swensen stuck to his guns.
The decision stood—and paid off handsomely.
These days, the Swensen model is often reduced to an asset-allocation decision: hold alternatives.
But as money has flooded into private-equity funds, average returns have converged on the returns in public markets.
There is no longer an obvious illiquidity premium.
But Mr Swensen's point about information remains relevant.
The dispersion of returns—the gap between the best and worst funds—is far higher in private than in public equity.
Selecting the right private-equity manager takes expertise.
Yale has some advantages: it can, say, tap into its alumni network for access to the better-run funds.
Mr Swensen is given too much credit in one regard.
Endowments had a history of innovation before his return to Yale.
Harvard's was already changing.
And endowments had previously been pioneers in asset allocation: the Ivy League funds shifted markedly from bonds into equities from the 1930s.
In other respects Mr Swensen gets too little credit.
Starinvestors are generally not good at mentoring others.
But Swensen alumni have regularly turned up in senior jobs at other endowments.
"He was a smart player but also an incredibly good coach," says a colleague.
In this, as in other matters of investment practice, David Swensen was a true outlier.