John At The Center

David Swensen, Yale’s chief investment officer, said: “The important thing is to stay in the trade. Those who stayed in caught the bounce, especially in emerging markets. Others like Harvard, I think, started selling like crazy.”

He said matters were made worse by a badly-timed bet on interest rates – which collapsed after Lehman – and the decision to cut risk insurance that had been put in place by Meyer’s successor, Mohamed El-Erian, now co-chief executive of the bond giant Pimco.

Harvard would not comment on investment strategy, but Harvard watchers on Wall Street said El-Erian’s insurance had allowed the endowment to ride out some of the turbulence before Lehman’s collapse. As the crisis worsened, HMC had lost its cushion and its nerve. “If you are down 20% or 30%, the human reaction is to sell when really you should be buying,” said one fund manager.

via What they don’t teach about cash at Harvard – Times Online.