LIKE MANY investors, the Swedish Nobel Foundation made 20.4 percent on its investments in 1997 but about zero percent so far in 1998. Like many other investors, the foundation has reduced stocks from 70 percent to 50 percent of its portfolio and is reviewing not only asset allocation but its fundamental approach to investing.
The catch is that the foundation, with assets at $353 million, is not saving for a comfortable retirement but to fund the gold medals, prizes and an annual bash in Stockholm that go with Nobel prizes. Not to worry. With expenditures of $12 million, its annual outlay is a conservative 3.4 percent, well below what most colleges take from their endowments.
What the foundation would not wish to do is entrust portfolio management to the two economists it awarded the Nobel Prize in Economics (separately endowed by Sweden's Central Bank) in 1997.
Robert C. Merton of Harvard University and Myron S. Scholes of Stanford won for their seminal work in valuing derivatives, such as stock options, which did much to encourage investment, speculation and ruination in these esoteric instruments.
Professors Merton and Scholes were partners and gurus of Long Term Capital Management, a hedge fund that collapsed, needing a $3.6 billion rescue-takeover. It had lost half its capital trading in fragile world markets using Merton-Scholes formulas.
As though to atone for last year's folly, the prize committee of the Royal Swedish Academy of Sciences awarded this year's Nobel Prize in Economics to Amartya Sen, an expert in the economics of Third World famine, deprivation and poverty.
"By combining tools from economics and philosophy, he has restored an ethical dimension to the discussion of vital economic problems," said the Swedish Academy of Sciences, referring no doubt to its own discussions.
Last year, the honor went to tools for greed; this year, tools for subsistence.
The 1998 prize will be vindicated if Professor Sen's ideas have more success in the real world than Professors Merton's and Scholes'.
Pub Date: 10/17/98