Walter M. Cabot '55 has been trading securities for more than 25 years, and today, he says, the business is more complicated than ever. "In the old days, all you did was buy a stock or a bond," explains the president of the Harvard Management Company. "Now you can buy 49 different things."

The proliferation of investment fields since the 1960s has multiplied the tasks of Cabot and his colleagues, who work full time in downtown Boston overseeing the University's $2.44 billion endowment fund. Because many of the highest earning investments are also the newest and riskiest, the company in the last six years has hired now experts, turned increasingly to outside consultants, and delved into at least a dozen new areas of money management.

With encouraging--even lucrative--results from investment sectors like venture capital, real estate, and the options market, Harvard has begun to raise the ceiling on these "special investments." This year, nearly $150 million will go into fields which Harvard (and nearly all other universities) shied away from only a decade ago.

Most college endowments are invested with far more caution than abandon--"prudence" is Cabot's favorite description--because the institutions will depend on them for money for generations into the future. But Harvard has received steady praise for its strategies of centralization and investing heavily in common stocks since the tenure of Treasurer George Putnam '49 began in 1973. With many universities searching for higher-yield investments after the inflationary years of the late '70s, Harvard has emerged as one of the heaviest and most diverse experimenters in the hunt for "modern" sources of funds.

At Home

The Management Company itself represents an unconventional form of administration. Most universities "farm out" their endowments to trusted expert brokers, retaining only moderate input on strategy. Harvard also followed this route for several centuries, with State Street Management handling the University's holdings during the terms of Treasurers Paul M. Cabot '21 and George Bennett '33.

But Putnam's appointment in 1973 spurred a major financial reorganization, and Harvard decided to move its investments in-house. The Management Company was formed the next year to oversee what was then a $1.15 billion endowment, with Walter Cabot and ten "partners" retained to work full time on multiplying the University's holdings.

Implicit in Harvard's forming the Management Company was a confidence that it could manage its money better and more cheaply than an outside staff of experts. For his partners Cabot drew from a group of traders, most of whom had two things in common: many years of experience in the Boston financial district, and a Harvard degree.

The expertise of this group became apparent in the late '70s, when Harvard was able to keep its endowment increasing while many other dropped sharply. Critics of in-house money management say it carries a risk of being stuck with poor traders for many years, but this has not been a problem at Harvard. The Management Company's leaders have been rewarded with salaries that approach $200,000.

Around 1977, the Management Company made a conscious decision to become more aggressive in exploring newer, unconventional investment fields. Putnam, Cabot, and Financial Vice President Thomas O'Brien--who had just arrived on the scene--are all vague when asked who originated and promoted the idea, but the Corporation quickly endorsed the push for diversification.

O'Brien says he saw the search for new sources of profit as almost a necessity. "A few years ago, it seemed [the Management Company's] strategy might not give us the revenue we needed," he recalls, but adds, "It's not a problem anymore. I think we're innovative."

Harvard's first forays into unconventional investments--real estate and venture capital--have proven to be the largest and most successful, although the Management Company has changed its strategy by relying on outside experts for guidance, "with a lot of massaging from us," Cabot says.

"It takes a very different kind of expertise than we have," says the Management Company's real estate expert, Michael Thonis. Cabot describes these fields as "very specialized, labor intensive" areas that require more manpower than Harvard can afford.

Partners

Harvard has gone into real estate and venture capital in trading partnerships with as many as 50 other investors, a handful of them other universities such as MIT, Dartmouth and Stanford. Through the Property Capital Trust (real estate) and a handful of venture capital holding companies (one of them, Satirev, is "Veritas" spelled backwards), the University has essentially handed over several million dollars to professionals and waited for the returns. They have been quite impressive.