{\rtf1\ansi\ansicpg1252\deff0{\fonttbl{\f0\fswiss\fprq2\fcharset0 Arial;}{\f1\fnil\fcharset0 Arial;}} \viewkind4\uc1\pard\lang2057\f0\fs18 In his fourteen years as Yale's chief investment officer, David Swensen has revolutionised management of the university's investment portfolio. By relying on nonconventional assets, including private equity and venture capital, Swensen has achieved a remarkable annualised return of 16.2 percent, which has added more than $2 billion to Yale's endowment. With his exceptional performance record prompting many other institutional portfolio managers to emulate his approach, Dr. Swensen has long been besieged by professionals in the field to write a book articulating his philosophy and strategies of portfolio management. \fs20 \par \par \i\fs18 Pioneering Portfolio Management\i0 provides a road map for creating a successful investment programme. Informed by Swensen's deep knowledge of financial markets, and ranging from the broad issues of goals and investment philosophy to the strategic and tactical aspects of portfolio management - such as handling risk, selecting investment advisers, and negotiating the opportunities and pitfall in individual asset classes - the book provides a vital source of information for anyone involved in institutional investments. \f1 \par }

David F. Swensen (1954–2021) was the chief investment officer of Yale University and the bestselling author of Pioneering Portfolio Management. He served on the boards of TIAA, The Brookings Institution, Carnegie Institution, and Hopkins School. At Yale, where he produced an unparalleled two-decade investment record of 16.1 percent-per-annum returns, he taught economics classes at Yale College and finance classes at Yale's School of Management. 

1IntroductionWhen I wrote the introduction to the first edition ofPioneering Portfolio Managementin early 1999, Yale's pathbreaking investment strategy had produced excellent results, both in absolute and relative terms, but had not yet been tested by adverse market conditions. 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.The years following the first edition's publication proved the worth of Yale's innovative asset allocation. The continuation of the bull market in 1999 and early 2000 produced wonderful results for Yale, culminating in a 41.0 percent return for the year ending June 30, 2000, a result that trounced the average endowment return of 13.0 percent. Yet, the real test of Yale's approach took place in 2001 and 2002 as the Internet bubble burst and marketable equities collapsed. Yale posted positive returns of 9.2 percent in 2001 and 0.7 percent in 2002, even as the average endowment reported deficits of 3.6 percent and 6.0 percent, respectively. In short, equity orientation continued to drive Yale's strong results, while diversification kicked in to preserve the university's assets.From a market perspective, the vantage point of early 2008 differs dramatically from that of early 1999. For the ten years ending June 30, 2007, Yale's 17.8 percent return emphatically exceeded the S&P 500's 7.1 percent. Twenty-year results tell a similar tale with Yale's 15.6 percent trumping the S&P's 10.8 percent. In fact, Yale's conspicuous success attracted the attention of many investors, making the university's strategy seem less radical and more sensible, less pioneering and more mainstream.In spite of widespread imitation of Yale's portfolio management philosophy, the university posted stunning returns relative to peers. For the year ended June 30, 2007, Yale reported a 28.0 percent return, which exceeded the results of all of the educational institutions that participated in the 2007 Cambridge AssociatesAnnual Analysis of College and University Pool Returns.More significantly, Yale's results led the pack for five-, ten-, and twenty-year periods. The university's pioneering portfolio management works in theory and in practice.The most important measure of endowment management success concerns the endowment's ability to support Yale's educational mission. When I arrived at Yale in 1985, the endowment contributed $45 million to the university's budget, representing a century-low 10 percent of revenues. For Yale's 2009 fiscal year, in large part as a result of extraordinary investment returns, the endowment will transfer to the budget approximately $1,150 million, representing about 45 percent of revenues. High quality investment management makes a difference!Institutions versus IndividualsWhen I wrote my second book,Unconventional Success,I characterized its message as "a sensible investment framework for individuals," in contrast to the institutional focus ofPioneering Portfolio Management.I erred in describing my target audiences. In fact, I have come to believe that the 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.The correct strategies for investors with active management expertise fall on the opposite end of the spectrum from the ap