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By Michael S. Teitelbaum

For much of the past two decades, predictions of an impending shortage of scientists and engineers in America have gained increasingly wide currency. The country is failing to produce scientists and engineers in numbers sufficient to fulfill its economic potential, the argument runs. The supposed causes are weaknesses in elementary, secondary, or higher education, inadequate financing of the fields, declining interest in science and engineering among American students, or some combination of these. Thus it is said that the United States must import students, scientists, and engineers from abroad to fill universities and work in the private sector-though even this talent pool may dry up eventually as more foreign nationals find attractive opportunities elsewhere.

Overall enrollment in U.S. institutions of higher education increased from about 7 million in 1967 to 14.5 million in 1992, remained at that level until 1997, and rose to 15.6 million by 2000. These increases differed for various groups (table 2-1 and appendix table 2-2 ). Enrollment is projected to increase in the first 2 decades of the 21st century for two reasons. First, the number of students of college age (approximated by the size of the 20–24-year-old cohort) is projected to grow. In the late 1990s, the U.S. college-age population reversed its 2-decade-long decline and began an upward trend. After decreasing from 21.5 million in 1981 to 17.4 million in 1997 (about 19 percent), the college-age population reached 18.5 million by the 2000 census and is expected to increase to 21.7 million by 2015 (appendix table 2-4 ).[4] Second, increasing numbers of students who are older than 24 years are enrolling in higher education. More than 50 percent of all undergraduates are 22 or older; almost 25 percent are 30 or older (Edgerton 2001).

The increased enrollment is projected to come from minority groups, principally from Hispanics, a group that has not traditionally studied S&E fields to the same extent as the majority white population. (See "Undergraduate Enrollment in S&E.") From 2000 to 2015, the Hispanic college-age population is projected to increase by 52 percent, nearly as high as the rise in Asian/Pacific Islanders (62 percent); those of blacks and American Indian/Alaskan Natives will rise by 19 and 15 percent, respectively. The white college-age cohort, which declined until 2000, is expected to rise by 7 percent, should expand slowly until about 2010, and should then decline again (figure 2-3 and appendix table 2-4 ).

The changing demographic composition of higher education can already be seen by comparing 1992 and 1998 data. During this period, overall enrollment increased by 1 percent, but underrepresented minority enrollment grew by 16 percent and Asian/Pacific Islander enrollment by 36 percent. In 1998, underrepresented minority students were more often enrolled than U.S. citizens overall in 2-year institutions (43 versus 39 percent) and less often in research institutions (12 versus 18 percent). (For a breakout of enrollment trends by institutional type and race/ethnicity in the 1990s, see appendix table 2-5 .)

By JAMES B. STEWART

Just a year ago, in the midst of the subprime meltdown, many of the nation's top universities and colleges were reporting significant gains. This year, the University of Pennsylvania is being hailed for Ivy League-leading results—with a decline of 15.7% for its fiscal year ended in June.

Results from other schools are still trickling in, but Harvard University has said it is expecting to report a drop of 30%, and Yale University about 25%. Considering the size of these endowments, these are staggering losses in absolute terms—many billions in the case of both Harvard and Yale.

Students soon will be heading back to larger classes, curtailed extracurricular activities and cheaper dining-hall fare. But the results are also of more than academic interest to investors like me, who have to some degree modeled their portfolios on the diversified asset-allocation model pioneered by Yale's chief investment officer, David Swensen. What I refer to as the Ivy League approach for individuals calls for diversification along similar lines as the large university endowments—equities (domestic and foreign), fixed income, and real assets (which includes commodities and real estate), but with a much higher allocation to so-called nontraditional asset categories: emerging-market equities and debt, energy and commodities. Yale allocated just 10% to U.S. equities and 4% to fixed income, with 15% in foreign equities and 29% in so-called real assets as of June 30, 2008.

The major difference is that most individual investors didn't qualify or otherwise couldn't invest in the hedge funds and private equity and venture-capital partnerships that make up a large part of university endowments. At Yale, 25% of the endowment was in what the university calls "absolute return," mostly hedge funds, and 20% was in private equity.

The irony is that turned out to be a huge advantage for individual investors this past year, when, in the midst of unprecedented market turmoil, many endowment managers learned the true meaning of "illiquid." The exits for most private equity and venture-capital funds slammed shut. Existing positions yielded no cash flow even as investment partnerships made new demands for funding. Many investors were forced to sell their liquid investments into weak markets to fund cash needs and to meet prior commitments to investment funds. Asset allocations went wildly out of balance, overweighted to illiquid partnerships as the value of equities plunged. It's a wonder that last year's results weren't even worse.

Liquidity turned out to be the Achilles' heel of the Ivy League model. But what about its core premise—diversification? True, nearly every asset category declined at some point in 2008, even those that were supposed to be uncorrelated, like equities and high-quality corporate bonds.

But for individuals who followed a diversification strategy—and who weren't forced to sell anything at distressed prices—those values have rebounded sharply, with many of the nontraditional categories, such as emerging-market equities and commodities, outperforming U.S. stock indexes. By sticking to liquid alternatives to private partnerships—such as mutual funds, exchange-traded funds, and real-estate investment trusts and publicly traded stocks and bonds—individual investors should have done far better than even the University of Pennsylvania.

Penn, too, found itself in quite a few illiquid partnerships. But it notched its league-beating return with some old-fashioned market timing. Chief Investment Officer Kristin Gilbertson recently told The Wall Street Journal that in early 2008 she started reducing the portion of the endowment in public equities to 43% from 53% and put about 15% in Treasurys. It turned out to be a shrewd move, and by endowment standards, which rarely stray from predetermined asset allocations, a bold one. The highly liquid Treasurys were one of the few assets to hold their value over the period and also enabled the university to meet capital calls from private-equity firms.

Market timing can be difficult, but I suspect some degree of it will increasingly be worked into endowment-allocation models. It will probably take years for the lessons of 2008 to be absorbed. But you can be sure that liquidity will gain new respect.

—James B. Stewart, a columnist for SmartMoney magazine and Smart-Money.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.