Maybe being Harvard isn’t so great after all.

Mesmerized by the investment returns posted by the wealthiest universities in recent years, colleges with endowments large and small have been drawn toward risky strategies that were credited with significant gains at some institutions. While the economic downturn doesn’t appear to have prompted a wholesale realignment, there are early indications that some investment chiefs are rethinking their approaches.

“A lot of them probably shouldn’t have been doing this [style of investing] in the first place, because they don’t have the oversight, they don’t have the staff,” said John Nelson, managing director of Moody's Public Finance Group. “They were trying to follow the big endowment strategy without increasing their staff costs and consulting costs.”

If there’s any trend emerging, it’s that institutions with endowments of varied sizes are moving toward more liquid investments that allow for speedier access to cash. Met with significant demands on resources at a time when resources are dwindling, colleges simply need money now – like right now. The urgent need for cash on hand, or liquidity, has some finance chiefs looking to disentangle themselves from the complex, long-term investment vehicles that came into vogue across higher education in the last decade.

“It is definitely back to the future in terms of investing,” Nelson said. “You’ll probably see small and medium endowments looking more like they did 10 years ago.”

While college officials are often rather cautious about discussing specific investment strategies, several have tipped their hands slightly in recent months. The University of Chicago, Harvard University and Northeastern University have all indicated they’re going to become less reliant on potentially “illiquid” assets like private equity, a category that includes investments in start-up companies. These investments are complex because they involve assets that aren’t publicly traded, and colleges that aim to get into the private equity game need great knowledge and expertise to accurately value the assets. Moreover, the payoff in private equity typically takes years – a luxury many colleges can’t afford right now.

Seeking quick access to funds, Northeastern University officials recently took a dramatic step. The university has liquidized up to 50 percent of its endowment, Faculty Senate minutes indicate.

Northeastern officials declined to discuss how exactly the university is changing its asset mix, but a Moody’s report indicates the university now has 44 percent of its endowment in cash – the most liquid asset of all. By placing nearly half of its endowment in cash, Northeastern is likely moving out of some of its longer-term investments and placing funds into easily accessible arenas like money market accounts, CDs and short-term treasury bonds.

Northeastern’s move toward a lower risk investment strategy comes on the heels of significant endowment declines. The value of the university’s endowment has dropped by 25 percent to $500 million since June, according to Senate minutes. Losses on that scale, however, have not been uncommon since Wall Street took its slide. Indeed, college endowment returns dropped by an average of 22.5 percent in the first six months of the 2009 fiscal year, according to a report issued by the Commonfund Institute and the National Association of College and University Business Officers (NACUBO).

26 Percent Decline? Congrats

Given the losses experienced by so many colleges, some financial chiefs say they’re satisfied with any strategy that staved off declines below 30 percent.

“Our returns are not positive, but they could be worse,” said Annette Parker, chief financial officer at Dickinson College, in Pennsylvania.

Dickinson, which has boasted significant returns in recent years, saw its endowment value fall by 26 percent to $259 million in the first half of this fiscal year. While it has a relatively small endowment, Dickinson has invested in areas that have traditionally been the province of the wealthiest institutions. Nearly 60 percent of the university’s investments are in private equity or alternative investments like hedge funds. While some of these financial instruments are complex, Parker says the university has done its homework – or at least hired those who have.

“I think that’s a misnomer and I really get disturbed when people say you’re being risky with your portfolio,” Parker said.

Dickinson is part of a nine-college consortium with assets managed by Investure, a firm founded by a longtime endowment manager at the University of Virginia. Absent the firm’s management and oversight, Parker says she too would be worried about Dickinson’s asset mix.

“It is true that when little guys try to invest in non-traditionals they are challenged because they lack the staff to do that,” Parker said.

“[But] while we look like we have a small endowment, we’re part of a five billion dollar pool,” she added.

Dickinson’s investments in potentially tricky areas are significantly greater than those of institutions with similarly sized endowments. About 31 percent of the college’s endowment is invested in alternative investment strategies such as hedge funds, compared with an average of 16 percent for colleges with comparable endowments, according to NACUBO. Ditto for private equity, where Dickinson has nearly 27 percent of its investments, compared to about 4 percent for other colleges with endowments of similar size.

While Parker says she’s confident Dickinson would be in a worse position financially if the college had a more traditional investment strategy, there are changes in the works. Dickinson isn’t pulling out of private equity, but the college isn’t getting any deeper into it, either.

“We’re sensitive to the market, and therefore we are not going to be increasing our private equity exposure,” she said.

“Exposure” is the operative word as colleges assess new investment strategies, and some are considering whether they simply have too much of it. At Chicago, where a $6.63 billion endowment has fallen some 30 percent since June, President Robert J. Zimmer recently said the university is asking itself some fundamental investing questions.

“There’s a lot of thought being given at the investment committee and the board of trustees right now to what does this tell us and how do we think about our risk and return,” Zimmer told Bloomberg. “And not just how do we mitigate risk, but how much risk should we be absorbing?”

As for the answers to such questions, a university spokesman said “I don’t think anyone is going to comment on that.” There’s little question, however, that Chicago is looking to strike the right balance between investing for the long-run and maintaining quality in the short term.

“Universities were fully invested when the crash came because our investment strategies had been successful, and when the crash came a lot of us suddenly found ourselves with near-term cash flow problems,” said Bob Rosenberg, a Chicago spokesman. “That reality is going to have an impact on wherever we go in terms of investment strategy.”