I’m bringing in outside speakers as part of this course and among them. I’m going to bring in people who I think have been philanthropists. That’s the mode of thinking that is most attractive when you think about financial markets. So, let me tell you about – I have slots now for four outside speakers. I’ve lined up two of them and let me tell you about the two that I’ve already lined up.
The first one is our own David Swensen. David Swensen came to Yale University in 1985 from Wall Street, although he was a Yale graduate. At that time, the Yale endowment was actually slightly under one billion dollars. What is the endowment of Yale? The endowment is defined as the financial assets that Yale University owns. Yale also has an art collection, which is worth many billions, but we don’t count that as part of the endowment because they will never sell it.
So, it doesn’t provide income for us. Yale also has a physical plant like this beautiful building that we’re in, but that’s not part of the endowment either. The financial assets that Yale had at that time were about a billion dollars. Since then, David Swensen has invested or has managed the investment of this endowment and it has done phenomenally well. Yale now has over twenty two billion dollars in its endowment. So, the return he got from 1996 to 2006 was 17% a year on investments. Last year, the return on the Yale portfolio was 28% in one year. Now, I don’t know how impressed you are, the year before that it was 22% in one year.
Now, some of this might be luck but I don’t think it’s all luck because he’s done this consistently for so many years. If you look up around this campus now, you’ll see a lot of constructions, a lot of things are being spruced up and improved. I think David Swensen has had a big hand in doing that because we have the money that makes it possible.
The endowment at Yale is something like two million dollars per student now, that’s just sitting there as money that could be spent. How did he do this? That’s one of the amazing things. It seems to have something to do, I think, with academic understanding that being part of a university community is a good thing for investing and you can see some evidence in that. Harvard University, Princeton University and other universities have done extremely well on their endowments, however, not quite as well as Yale. Yale, I think, is number one performer. So, it’s very interesting that we’re able – it’s very significant that we’re able to get David Swensen. He doesn’t do a lot of public speaking but he is willing for young people like you to do this. So, that’s one of our outside speakers. He also has two books about investing that we’ll talk about.
The second person I have set up now to come, although the date on the syllabus online is going to be changed is Andrew Redleaf who is also a Yale graduate and who set up a hedge fund called Whitebox Advisors. It has done phenomenally well in investing. I think I have on the syllabus a New York Times article about him. He’s a very original and creative thinker who looks at things from a unique perspective and I find it very interesting talking with him. To do well in investing, you have to have your own independent view of things and really be thinking about how things work and he is someone who does that. Incidentally, the New York Times had another article about Redleaf, saying that he was really one of the first persons to clearly delineate the subprime crisis that we’re now in. He saw it coming and I have to say, profited from it. If you know the subprime crisis is coming, then there’s always a way to profit from that and that’s what he did. But, he also has a philanthropic side, so it all comes out very well.
Finance and Insurance: Powerful Economic Forces Pt 2
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