Bigger is not always better in investment portfolios.

The primary advantage is that large size justifies hiring astute money managers.

Understanding the strategy of those entrusted with billions of dollars for the long haul can help individual investors handle their own portfolios.

Diversification has been a key ingredient in the success of large institutional investors such as university endowments in recent years.

For example, the $22.5 billion Yale University endowment had a 28 percent gain in the fiscal year ended in June. The average for all foundations and endowments was 17.5 percent, according to the Wilshire Trust Universe Comparison Service.

The Yale endowment has had an 18 percent annualized return over the past decade. Its recent diversified portfolio included 27 percent international and domestic stocks, 4 percent bonds, 28 percent real assets such as real estate, 25 percent alternative investments such as hedge funds, and the rest in private equity.

"Endowment managers avoid 'trend tracing,' which is the practice of jumping into an investment area that has had hot returns," said Josh Lerner, an investment banking professor at Harvard Business School. "Individual investors should emulate their approach and take a longer-haul approach."

But being big is no guarantee of success.

In the early 1970s, University of Rochester had the third-largest university endowment behind only Harvard University and University of Texas. Poor investment returns in subsequent years because of underperforming stocks such as Eastman Kodak and Xerox took their toll. By 1995, Rochester had fallen to No. 25, resulting in a reduction of faculty and programs. It currently ranks 35th overall.

There is no magic in simply having a large pool of institutional money. Despite the strong average performance of endowment funds, Lerner said, those that lacked necessary resources or qualified personnel haven't done all that well.

Many institutional funds have seen their hedge fund holdings take significant hits in the subprime lending debacle of recent months, with those losses likely to show up in their coming results. That has encouraged a conservative mind-set.

"Endowment managers are saying this year isn't a time for a bold new initiative, but rather a time to be careful and avoid big mistakes," Lerner said, contrasting this to the recent past when real estate, technology and natural resources offered substantial opportunities. "Their common theme is judging risks and exposure in anticipation of some rocky times in years to come."