"The key is that risk can be mitigated by having good people manage [venture capital firms]," Williams' Phillips says. He notes that venture capital managers' income and wealth heavily depends on the success of their funds, which limits the unnecessary risk these investors are willing to take.

Even with the high risk of venture capital investments, Meyer says it is an important and necessary part of Harvard's and other universities' endowment investments. He notes that while the investment itself may be risky, the diversity of the endowment portfolio, enhanced by venture capital, mitigates the danger of great losses.

"The risk in the [endowment] portfolio is lower today than it was eight to 10 years ago," Meyer says.

Moody's Investors Service, a company that measures the financial strength of universities to determine their bond credit ratings, expresses a similar view about endowment risk.

"We believe that the diversification of the larger endowment portfolios will help reduce volatility of investments over the longer term," a report released in Feb. 1999 says. "If the U.S. equity markets enter a significant period of poor performance, university investment officers expect these non-traditional asset classes to reduce the volatility of their investment returns over the long term."

Despite its attempts to avoid as much risk as possible in venture capital investing, Meyer says HMC understands it could lose significant amounts of money in these investments and is prepared to take these loses. These kind of loses would not be unprecedented, as the endowment lost $1.3 billion in the summer of 1998 in emerging-market and other risky investments.

While Meyer has not enjoyed the market volatility of the past few weeks, he says it is not a major concern to him. He has not, he says, lost any sleep over the sharp market declines.