Fwiw, I hold strictly to a low fee, passive investment style (save for one share of Berkshire Hathaway, for old times sake).
I think, though, that it is silly to compare the two styles. Mom and Pop retirement assets have very different characteristics (liquidity, investment time horizon, etc.) than endowments. If I had billions that I wanted to grow over hundreds of years, I’d hire Swensen. For my smaller and shorter needs, Vanguard is fine.
When Swensen has been doing great relative to peers, criticizing him for yielding more money after the fees?
If I were a hater at Bloomberg or WSJ and want to criticize him, the only legit way is to (1) demonstrate that the risk profile of Yale endowment is too high for its investment objectives, (2) argue that the seemingly higher return is actually not sufficient to compensate the high risk it takes, and (3) use an extreme event, like the performance during 2008 financial crisis, to make the point. Note that given Swensen’s track record, I personally would not want to write such an article. I will pick someone else, for sure.
The writer also missed a major point about running a large-scale institutional portfolio. It is well established in the literature that the majority (>90%) of return variability is determined by asset allocation at the macro level: allocation of capitals into big categories of investments, such as private equity, absolute return, domestic stocks, real estate, etc. This article says little about this. I bet Swensen’s performance can be largely explained by the evolution of asset allocation shift/rebalance (particularly more into private equity over time) since he has been a leading figure in this regard.
The article mostly talked about fund selection at the micro level: active vs. passive. No more than 10% of the return variability of a typical institutional portfolio, such as Yale endowment, is determined at this micro level. For institutional investors who pay less fees (thus less fee differential) than individual investors, the average performance of active funds is actually not that different from that of passive funds.
Overall, little beef in this article.
By virtue of their skill in active portfolio management (including asset allocation, manager selection and ability to negotiate fees), Swensen and his team have created literally billions in value for Yale, far in excess of what Yale pays the external managers that it employs to implement its investment strategy, and an order of magnitude more than any donor. Swensen is personally paid far less than many of the managers to which he allocates capital. The returns he generates form a major part - more than a billion dollars - of the university’s operating budget, including financial aid. Criticizing what Yale pays external managers is like saying the winner of the Indy 500 spent too much building their car.