Yale’s David Swensen Puts Money Managers on Notice About Diversity
Endowment chief tells investment firms they will be gauged by their hiring of women and minorities
Yale’s endowment, one of the largest in the country, is valued at $31.2 billion.
PHOTO: CRAIG WARGA/BLOOMBERG NEWS
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Oct. 23, 2020 7:00 am ET
America’s most prominent endowment chief has a message for the firms that manage the school’s money: Hire more women and minorities, or possibly lose the university’s backing.
David Swensen is the veteran investment chief of Yale University’s $31.2 billion endowment. Earlier this month, he told the dozens of firms that manage Yale’s money they would be measured on their progress increasing the diversity of their investment staffs. Mr. Swensen said the Yale Investments Office would be working to improve its own team’s composition, too.
The national discussion over race has resulted in an accelerated push for diversity on boards and in companies across the U.S. It has also prompted some investors to look at investment management, one of the least diverse fields on Wall Street. A 2019 study commissioned by the Knight Foundation found women- and minority-owned firms held less than 1% of assets managed by mutual funds, hedge funds, private-equity funds and real-estate funds in 2017, despite performance typically on par with firms not mostly owned by women or minorities.
Yale’s endowment, one of the biggest in the country, is watched closely by other schools given Mr. Swensen’s stature. He has championed the idea that big investors should diversify beyond stocks and bonds and incorporate qualitative assessments of managers into investment decisions. His approach has generated big gains for Yale and reshaped how endowments and foundations invest.
“Our goal is a level of diversity in investment-management firms that reflects the diversity in the world in which we live. Genuine diversity remains elusive, giving investors like Yale and your firm an opportunity to drive change,” Mr. Swensen wrote in a letter to money managers this month. Yale plans to ask its managers for relevant data on diversity annually, the letter said.
Mr. Swensen said firms would be measured annually on hiring, training, mentoring and retaining women and minorities on their investment staffs. Though Yale isn’t mandating specific targets, Mr. Swensen said the university could pull its money from firms that show little progress over time. Small firms that rarely make new hires will likely have more time to show progress, he said.
In a recent Zoom interview, Mr. Swensen, age 66, said he and others at Yale’s endowment had long discussed diversity with managers they were invested in. He said he had held off on systematic efforts to encourage more diversity at those firms in part because of a belief it resulted from an insufficient pipeline of diverse candidates entering asset management.
‘Genuine diversity remains elusive, giving investors like Yale and your firm an opportunity to drive change.’
— David Swensen, Yale’s endowment chief, in a letter to money managers
But the Black Lives Matter movement has had a galvanizing effect on him and the team, Mr. Swensen said, prompting discussions over Zoom about how to address the lack of diversity in the investing world. He immersed himself in newspapers’ coverage of the protests and said he was reminded of the activism of the 1960s, when he was a high-school student reading about the civil-rights and Vietnam War protests from his hometown of River Falls, Wisc. He said he was astonished and heartened by the movement’s impact.
“I’m not going to make a contribution by marching anywhere,” said Mr. Swensen, who was diagnosed with late-stage renal-cell cancer in 2012, seated on a couch in his Killingworth, Conn., home. “So I figured, what can we do?”
Mr. Swensen said his thoughts on the benefits of diversity in investment management reflect the benefits he has seen at Yale itself.
Yale’s polyglot student body has enriched the university community and made Yale a more meritocratic place than decades ago, before women were admitted and when a quota on Jews existed, he said. He similarly hopes investment firms staffed by people with the broadest set of backgrounds will outperform those that are overwhelmingly white and male.
Mr. Swensen suggested in the letter, sent to the 70 U.S. managers Yale is invested with, that they consider recruiting directly from college campuses rather than traditional recruiting grounds such as investment banks.
how about free tuition for women and minorities too?