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Robert Trigaux

Harvard, Yale money managers burned by investments 'too good to be true'



Wake up and good morning. Before we dive into the day's news, let's pause to remember the events of Sept. 11, 2001, those who died and those who worked so hard to rescue the wounded. ***

Ericbaileyrogerrobsoncaptrustfinancialadvisorstampa Perhaps Harvard and Yale aren't quite as smart as they think they are. Reports out Thursday show their endowments, the two largest in higher education, each lost 30 percent of their value in the year ended June 30. Combined, the pair of investment pools shrank by a staggering $17.8 billion, the Wall Street Journal reports. Here's the complete story. 

We care because Harvard and Yale are among those financially managed endowments treated like royalty for years. Now, as the Journal notes, the "dismal returns have exposed weaknesses in their exotic approach to investing, which after turning in chart-topping performance for years has proved to be highly risky." The schools, along with other high-profilers like Stanford University, Princeton University and MIT, all predict similar losses.

Their investment strategies were the same: de-emphasizing traditional stocks and bonds, and bulking up on alternatives (as in hedge funds) unavailable to the average investor. Now the schools that thought they had hit on a high-return, low-risk strategy are busy slashing costs to make up for heavy losses.

What does this all have to do with this Tampa Bay business blog? The Journal quotes Tampa's Eric Bailey (left, in photo above), managing principal of CapTrust Financial Advisors LLC, a firm that advises college endowments among other significant clients. Says Bailey: "If it looks too good to be true, it probably is."

Bailey told the Journal that typical colleges outperformed Harvard last year because they stuck to a plain-vanilla approach, typically allocating 60 percent of their holdings to stocks and 40 percent to bonds. That strategy would have generated a loss of roughly 13 percent in the year ended June 30. Harvard still claims it's better off over the long run than it would have been if it had pursued a more conservative investment strategy.

You would be familiar with Bailey and CapTrust Financial Advisors already had you read a St. Petersburg Times profile in 2008 that focused on one of the firm's unique clients: the Catholic church. CapTrust advises Catholic clients on more than $4-billion of investments, nearly half the company's $10-billion client base at the time. It took on the role in 2007 when it merged with the Miami-based Schott Group, adviser to about two dozen diocese, archdiocese and other Catholic institutions across the country.

(Photo: Eric Bailey, left, and Roger Robson, both managing principals at CapTrust, stand in front of a painting of pope Sixtus IV by Raffaele Capo, part of a Vatican treasures exhibit last year at the Florida International Museum in St. Petersburg. Photo by Atoyia Deans of the St. Petersburg Times.)

-- Robert Trigaux, Times Business Columnist 

[Last modified: Tuesday, June 1, 2010 11:26am]


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