There's "not much plain vanilla" in the university's portfolio
Jack R. Meyer, who took over the school's $4.7 billion endowment in 1991 and turned it into a $22.6 billion behemoth.
Just as most colleges look up to Harvard University, most investment managers look up to Harvard Management Co., the in-house firm that manages $27 billion for the university. Over the past decade, Harvard has posted a 15.9% annual return, vs. just 10.1% for the median large institutional fund. That feat has generated an extra $12.2 billion -- nearly as much as the entire endowment at Yale University, the second-wealthiest. Says James Swanson, chief investment strategist at MFS Investment Management: "They are the Mickey Mantles of the investing world."
Harvard Management has achieved this with a formula that bears little resemblance to that of the average investor. "There's not much plain vanilla in our portfolio," says Chief Executive Jack R. Meyer, who got the university to adopt a model portfolio soon after he arrived from the Rockefeller Foundation in 1990. Today it calls for investing just 15% of the fund into U.S. stocks, and 11% into conventional U.S. bonds, far less than is usual for individuals or most institutions.
Meyer's core strategy is diversification writ large. He and the 175 pros who work with him cast their net far and wide -- from private equities and hedge funds to real estate, commodities, and foreign stocks and bonds -- in their search for investments that don't move in step with each other. Harvard also puts just as much money into foreign and emerging stocks combined as it does into U.S. equities. And its bond portfolio covers the waterfront. "When I say bonds, I don't just mean conventional U.S. bonds," says Meyer. "But also foreign bonds, high-yield bonds, TIPS [treasury inflation-protected securities], and emerging-market debt."
The diversification strategy doesn't preclude huge bets. Meyer's model portfolio calls for 13% in commodities -- along with hedge funds and the like, the second biggest class of investments on his menu. But about 77% of Harvard's allocation to commodities is invested in timber. "It's one of my favorite asset classes right now," says Meyer, "because if you have a little skill, you can buy timber today [and achieve] a 7.5%-to-8% annual real return, assuming flat real log prices." He has three professional lumberjacks on the payroll who select the forests he buys and help manage them.
http://www.businessweek.com/print/magazine/content/04_52/b3914469.htm?chan=gl
