The Associated Press

CLEVELAND - The Cleveland Clinic investment strategy that fueled the clinic's explosive growth during the 1990s has backfired, costing the hospital $340 million the past two years, the reported on Sunday.

The clinic's pension fund also incurred losses, including $232 million last year, and is now underfunded by more than $360 million.

Last year alone, the clinic lost nearly $500 million on $1.7 billion of investment assets, including those in the pension fund, the newspaper reported.

The unusually aggressive strategy focused nearly 60 percent of its equity investments in fewer than 25 stocks and at one time amounted to 95 percent of investment assets, the newspaper said.

The losses raise issues of asset allocation and undue risk, said Terry Fergus, an accountant who reviewed the clinic's financial statements.

"Nobody puts their portfolio in a position to sustain wild swings," Mr. Fergus said. "Considering the dismal performance of the market in 2000, to take another 30 percent hit in 2001 is shocking, because you think you would have repositioned your assets by that time."

The clinic is the region's largest employer, with more than 26,000 people, and as the dominant health system serving the region, is one of the major drivers of health care prices.

At the end of September, the clinic reduced long-term investments to 65 percent equities, and the pension fund is down to 55 percent. The rest is in cash and fixed-income securities, such as bonds.

"We will be much more conservative in how we treat our investment assets for the foreseeable future," said Mike O'Boyle, the clinic's chief financial officer. "It isn't likely we will have the concentration of risk that we have had before."

The clinic's operations are bringing in more cash than they are spending, so its reliance on stock market profits has waned.

But the clinic will pay a price for its market gamble. Moody's singled out the clinic's concentration of stocks in October when it downgraded ratings on the bulk of the clinic's bonds a notch, citing concerns about the losses.

In 1992, the clinic had a traditional investment approach and a much smaller investment portfolio, with 40 percent of its $265 million portfolio in stocks, according to reports.

The following year, the same year the late Al Lerner began chairing the 21-member finance committee, it shifted more than 70 percent of its investments into stocks.

The clinic took its worst bruising from Akron-based fund manager Oak Associates Ltd.

When the market took its post-Sept. 11 dive, the value of the clinic's cash and investments slid $377 million to $746 million.