Harvard's Lesson: Set a Defensive Strategy


Dennis Slothower Image Dennis Slothower Chairman and CIO, Alpine Capital Management

Harvard Endowment, which manages $36 billion in assets, is selling $2.5 billion in private equity, venture capital, and real estate investments, observes Dennis Slothower, editor of Wall Street's Underground Profits.

These are not easy things to sell should a recession hit, so reducing illiquid assets is a defensive maneuver, as we’ve been seeing many financial institutions do recently.

What a history Harvard has with this Endowment. Under the management of Jack Meyer, the Harvard Endowment grew from $4.7 billion in 1990 to $25.9 billion in the fall of 2005, when Meyer left. At that time the Harvard Endowment was the largest endowment in the world.

One of the successes of Meyer as a manager was how he managed the Endowment during bear markets. For example, the S&P 500 fell -10.14% in 2000, -13.04% in 2001, and -23.37% in 2002 in the dotcom recession.

The Harvard Endowment was up +32.2% in 2000, -2.7% in 2001, and only lost -0.5% in 2002 compared to the -23.37% in 2002.

In 1994, the S&P 500 suffered a minor recession and was down -1.54%, but Meyer’s endowment was up +9.8% in this lackluster year. In the recession of 1990, the S&P 500 fell -6.56% but the Harvard Endowment was up +7.5%.

What was behind Meyer's success? Jack Meyer used active money management rather than passive money management.

To protect his portfolio, Meyer used diversification but more importantly, he used a simple buy rule: Buy when the S&P 500 monthly was above its 10-month smoothed moving average.