Money for the Ages

In April 1985 Yale University hired thirty-one-year-old David Swensen to run its endowment. He came from Wall Street and agreed to be paid a fifth of what he’d been earning. The fund was then worth around one billion three hundred million dollars; when Swensen died in 2021, it was worth more than thirty-one billion. And that’s while handing money to the university every single year for decades. Over the thirty years to 2020 it returned an average of more than twelve per cent a year.

What did Swensen do? Above all, he understood that a university endowment is a special animal. A university means to live for ever, and it doesn’t need to take its money out in ten years, like a pensioner, or in one, like a speculator. And if that’s so, you can invest where an ordinary person can’t: in private companies, property, venture funds, timber, long projects you can’t get out of quickly. The money is locked up for a long time—and for that, such investments can pay more. Can, not must. And even an everlasting fund needs cash every year for scholarships, so not everything can be locked away. In 1989 almost three-quarters of the fund sat in American shares, bonds and cash. By 2019 around sixty per cent had gone into these “alternative” investments.

The Fund That Lives For Ever

A fund meant to exist indefinitely is called an endowment. It has two jobs, and they pull against each other. The first is to pay out money every year for its cause: scholarships, professors, laboratories. The second is to preserve and grow the capital, so it can still pay out in a hundred years, and in two hundred.

Pay out too much, and the fund slowly eats itself. Too little, and today’s students are paying so that future ones can live well. That’s why Yale has a spending rule: it stops spending from jumping up and down with the market. How much to spend this year is worked out like this: eighty per cent of last year’s spending plus twenty per cent of what you’d get by taking a set share of the fund’s value, around five per cent. Each year spending moves only a little towards the target. In a good year the university doesn’t splash out. In a bad one it doesn’t cut everything at once.

That is exactly what people who live from one big score to the next can’t do. The rule decides in advance how much you can spend. The market’s mood doesn’t decide for you.

The Fund That Buys Loyalty

We had long-term funds too. And they had obligations too.

Dickie writes that Bernardo Provenzano, after taking over the Sicilian Mafia following Riina’s arrest, achieved one main thing: he stopped mafiosi defecting to the side of justice in droves. He didn’t wipe out the traitors and their families; he talked them into withdrawing their testimony. And at the same time, as had been the custom from of old, he put care for the prisoners back among the organisation’s first priorities. In the mid-nineties, when everything was in turmoil, many jailed mafiosi weren’t being paid what they were owed, and that was pushing them to cooperate with investigators.

Look at it as the design of a fund. A Mafia fund has beneficiaries—the men inside and their families. The fund pays—they keep quiet. It stops paying—they start talking. As long as the fund keeps its word, the organisation holds. Provenzano understood what the board of any endowment understands: stop keeping your promises and people stop believing in you. And then no assets will save you.

The Money Manager

And for a fund to grow, it needs its own Swensen. The Camorra clans understood that too.

Saviano tells of Dante Passarelli from Casal di Principe. A former delicatessen man, he had, according to Saviano, a remarkable talent for business. That was evidently enough for him to be offered the job of investing part of the Casalesi clan’s capital. He started in wholesale, then moved into industry: from pasta to construction, from sugar to restaurant supply. He finished with football. Investigators put his fortune at three to four hundred million euros, and he had invested a good part of it in shares and in agribusiness. He owned one of the largest sugar refineries in Italy. In December 1995 he was arrested. His assets were confiscated.

I tell this story not as a model but as a mirror. Different asset classes, a professional manager, a long horizon—just like Yale. Almost. There’s one difference. Yale’s fund can be checked: it publishes reports, and the money in it is clean. A clan’s capital can be confiscated overnight, and no diversification will help. The biggest risk turned out to be the one shared by every asset at once. That they’d be taken away.

The Don’s Fund

When Don Vincenzo was past seventy, he did something he told almost nobody about. He put a large sum in the bank and called it “the children’s fund”. That money paid for the schooling of the children of the pressers, the drivers and everyone who had worked for us for more than ten years.

The fund had one rule, and the Don wrote it himself: spend no more than five per cent of what’s in the fund each year, and never touch the capital. Once Signora Lucia asked for an exception. One girl had a gift, and she needed to go abroad to study, which was expensive. The Don said no to the fund paying. He paid out of his own pocket. “The fund is for all the children, for a hundred years,” he said. “If I start making exceptions, in twenty years there’ll be nothing left in it but my good intentions.”

Five per cent isn’t a magic spell. It keeps a fund going only as long as the fund itself earns more: five goes to the children, rising prices eat some more, the bank takes something. Put that kind of money in an account that pays nothing and spend five per cent of what’s left each year—in twenty years a little over a third of the fund will remain. So the Don understood “never touch the capital” like this: don’t protect the figure in the passbook, protect how many children it can put through school. Every year he looked at how much we’d spent and how much the fund had earned. If it had earned little, the children got less that year.

The fund is still running. I’m its trustee. The girl, by the way, became a doctor.