With its value plunging along with the rest of the market, Harvard's endowment is laying off a full 25% of its staff -- 50 people.

Harvard's endowment has an unusually large staff because, unlike most colleges, it manages a significant portion of its money in-house. At most colleges, the endowment managers main task is to select outside managers for the funds.

Harvard's endowment managers have come under some fire lately for the seven-figure pay packages they often receive. According to The Wall Street Journal (subscription required), "For the most-recent academic year, HMC paid its top six managers $26.8 million."

By laying off a quarter of its staff to reflect a decline of around 25% -- probably a bit more -- in the endowment's value. Harvard is preventing its costs from growing to a higher percentage of its asset value. Lower bonuses for fund managers will also help the endowment control its costs.

University endowments and pension funds for government employees and teachers are big investors in venture capital partnerships. Now, thanks to the decline in the stock market, these endowments and pension funds have too big a proportion of their portfolios invested in illiquid venture capital and private equity funds. So they are trying to sell those interests -- and I am guessing they will fail to do so or take big losses when they do.

Two of the biggest funds are above their limits. Consider the largest university endowment -- Harvard Management Company -- which had $36.9 billion as of June 30. Harvard has reportedly hired a bank to sell its private equity investments that make up 13% of its portfolio for fiscal year 2009. The largest state pension fund, Calpers, has a 10% target for private equity -- which includes venture capital and LBOs -- and because of falling stock values, its private equity share exceeds the target by 3%.

The forced sale of these private company ownership stakes is not good for the venture capital industry, which saw investment fall 6.9% in the third quarter. There might be some demand for the illiquid shares of venture-backed startups from corporate venture capitalists. But with an initial public offering market in hibernation and VCs telling their portfolio companies to cut way down on their burn rates, it looks like this largely lost decade for IT innovation will end with a nuclear winter.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

We've all read about how expensive college educations can be. Hopefully, you're stashing away your hard-earned bread to be able to send Timmy to Princeton. Don't worry if you can't -- endowments and scholarships are picking up the slack.

But, for those on the upwardly-mobile track and thinking of sending your kids to an elite high school, get ready for some sticker shock.

The NYTimes.com reports today about growing tuition rates and endowments at some of the nation's leading prep schools.

While schools such as Exeter charge almost $40,000 for tuition, room, and board according to the article, that's just a fraction of the average of $63,500 annually Exeter fronts to house and educate each of its 1,000 students.

So, what's an aspiring family without the requisite resources to do?

Sometimes you need to look outside the box in constructing a portfolio, and sometimes you have to look at the box. That box may play an important role in the diversification of your portfolio.

The New York Times has an article today about the prevalence of timber threat in the U.S. The article quotes, "The total value of the American log-export market has more than doubled since 2000, industry experts said, and it continues to grow."

This growth, in turn, is encouraging a new breed of tree hugger -- thieves who chop down timber illegally. It's not as severe as tree cribbing in countries like Indonesia and Brazil facing huge deforestation.

Historically, large investment funds like the Harvard Endowment have made large investments into timber (legally). In 2004, Harvard purchased a 468,000-acre New Zealand forest -- then estimated to be worth $540 million.

In the wake of the nation's subprime worries, Wall Street has over the past year tried to offload its risky mortgage-backed securities to just about anyone who showed an interest, including university endowments. Last month, it was reported that the top 53 university endowments, with assets of about $217Bi, have invested nearly 18% of their money into hedge funds. In contrast, the average pension fund has around 5% in hedge funds.

Today The Wall Street Journal reported that Harvard University's endowment fund has lost about $350M through its investment through Sowood Capital Management, a hedge fund founded by Jeffrey Larson and Stuart Porter. Larson managed Harvard's foreign stock holdings until 2004, and then left to start Sowood, which recently lost over half its $3B value through poor bond investments.

Harvard Management Co, manager of the university's endowment, has always been considered one of the nation's most successful investment management firms, with annualized returns of 15.2% over the past 10 years through 2006.

Their hedge fund strategy worked well in the past, especially during the period 2000-2002, when they generally outperformed other investments. Endowments, however, are late to the table. While $350M is only a dent in Harvard's $29B endowment, it highlights the risks that colleges are taking in nontraditional investments like hedge funds and private equity. If Harvard is making these mistakes, other universities need to seriously look at what they are doing.

In the past, I've written about how hiring a pro to manage your money is unlikely to lead to superior returns, even if he or she has stellar Ivy League credentials. Nevertheless, investors may be able to learn some things from the new manager of Harvard University's $30 billion endowment. The New York Times recently interviewed Mohamed El-Erian, who took over the post last year. Here are some of the ideas that I culled from reading about his strategies:

* Be aggressive and willing to go against popular sentiment. In mid-January, only months after taking over, El-Erian made a large bet that the global financial markets were over-valued. It's a decision that's paid off so far, but it took some courage: he was the new man on the job, and he wasn't afraid to stick his neck out and make a bold call.

* While his predecessor, Jack Meyer, was unwilling to make bets on the direction of the market, El-Erian believes that he can do so with success. While this view in contradicted by many market pundits, El-Erian has confidence in his abilities, and is giving it a shot and, so far succeeding.

* El-Erian described his father's, a law professor, insistence that "we be exposed every day to a range of international newspapers that covered the entire political spectrum because it was a constant reminder that there are many ways to think about the same issue." Looking at issues from different perspectives, and seeing things differently from others, is an important part of successful investing. In fact, it's the only way to find strong stocks.

Michael Steinhardt, one of the most successful investors in recent times, called this variant perception: "a well-founded view that is meaningfully different from the market consensus . . . In those instances where there was no variant perception . . . I generally had no interest and would discourage investing."

The main thing to remember is this: to have an edge in investing, you need to see or understand something that others don't.