One is confidently investing billions of dollars in junk -- the bond variety, that is. The second sees untapped riches in the dense woodlands of New Zealand. The third is hot on bridges. (Yes, those steel roadbeds that traverse rivers and the like.) Who knew?

Inside the January Issue

• Where to Invest 2012
• 3 Money Managers Share Their Secrets
• 10 Things Vacation-Rental Sites Won't Say
• The Wishdom of Crowds

While it's well-known that a small coterie of professional investors -- those who manage huge sums of money for pensions, endowments and insurance companies -- can move the markets, it is generally a closely guarded matter what these influential managers are buying and selling. Which, it turns out, is seldom what most investors are thinking about buying and selling.

For our look ahead at 2012, we've turned the klieg lights on three of the more successful, if off-the-radar, institutional investors around. And the results are surprising. For one thing, the general economic outlooks of these financial wizards are nowhere near as gloomy as you might think. In some cases, even their shorter-term picks betray -- dare we say it? -- a little optimism. As other big-time money managers react cautiously to the shaky economy -- rushing headlong, for instance, into the safety of government notes -- Edward Grzybowski, the chief investment officer for TIAA-CREF, has loaded up the flatbed with high-yield, or so-called junk, bonds. Judy Greffin, chief investment officer at insurance giant Allstate, has taken up ownership stakes in commercial office towers and bridges. And Jane Mendillo, who runs Harvard's $32 billion endowment -- the largest of any university's -- remains so unruffled by the economy, she has a "zero allocation" in cash.

Pros like these are the investing-realm equivalent of free agents. Unlike most mutual fund managers, who must hew closely to a particular investing style (or, in some cases, region) no matter what, these institutional investors have a globe's worth of markets to play in. Their singular objective: to boost their endowments for the long term without taking unnecessary risks in the short term. In other words, their investment goal is probably a lot like yours.

Vital Stats

Photograph by Carl Tremblay for SmartMoney

Assets Under Management: $32 billion

12-Month Returns Through 6/30/11: 21%

Resume: She worked in key positions for Harvard's endowment from 1987 to 2002; after a stint at another endowment, she returned as CEO in 2008.

Boldest Bet: Building a timberland portfolio for Harvard in the late 1990s; she was on the cutting edge of the trend to focus more on "hard assets."

Jane Mendillo

President and CEO, Harvard Management Co.

Harvard may be eternal, but it relies on its $32 billion endowment to keep the lights on and trim the hedges. Some $600 million in donations comes into the university every year, while about $1.3 billion goes out the door to supply one-third of Harvard's annual operating budget. Jane Mendillo, who took the helm of this massive fund in July 2008, juggles the twin demands of meeting the university's never-ending cash needs while cultivating the endowment to the point, she says, where it can sustain Harvard "in perpetuity." In that, at least, it's not unlike an individual who needs to save for retirement and pay the rent.

To accomplish these often competing goals, Mendillo, 53, has a few investing tricks up her sleeve. Because the school's portfolio holds no cash, for instance, she adds "ballast" by devoting a portion of it to hedge funds that use "absolute return" strategies -- employing a variety of investment products (stocks, bonds, commodities, derivatives) intended to make money in both rising and falling markets. She has also done well with what you might call a Goldilocks angle: wandering into the woods. In fact, Mendillo considers the $1 billion-plus timberland portfolio that she has been building since the late 1990s the "best call" of her 25-year money-management career -- much of which has been spent in ivory towers. After a six-year stint as the chief investment officer of Wellesley College, she returned to Harvard's investment office as the new CEO just months before Lehman Brothers collapsed. The endowment tumbled 27 percent during her first year at the helm, but Mendillo has since regained her footing: The endowment rose 21 percent during the fiscal year ended in June, edging out by two percentage points a standard benchmark of 60 percent stocks and 40 percent bonds. (Most endowments, which invest heavily in bonds, track their performance against such a mixed portfolio.) We asked her where she sees the best opportunities now.

SmartMoney: How do you think the global economic uncertainty will affect the markets?

Jane Mendillo: It is a complicated world right now. There is plenty of market volatility, but with that comes a lot of opportunity. There are big questions outstanding in Europe, from the health of the banks to the fate of the euro. As long-term investors, we have broad exposure to Europe as well as to emerging markets, and we are intrigued about opportunities coming out of this uncertainty.

SM: Emerging markets have been all the rage with investors, but they were a huge disappointment in 2011. Why?

JM: In emerging markets, as with all investments, we need to look at valuation. It doesn't surprise me that some of those markets did poorly this year, because they had returns in recent years that exceeded expectations.

SM: You've made your name by emphasizing alternative investments. What's your take on alternatives now?

JM: We like hard assets. We were early investors in timberland

and agricultural land. We also invest in private-equity and hedge funds, some of which use an absolute-return strategy. We don't keep cash in the portfolio, so the absolute-return funds and the fixed income should be the ballast of the portfolio.

SM: You took charge of Harvard's endowment at the start of the financial crisis. What was your most critical adjustment to the portfolio?

JM: During the crisis, our focus was to contain the damage that the markets were doling out to all investors. We were very attentive to risk management. I don't think we got real defensive, though. We wanted to create more flexibility in the portfolio by switching to more liquid assets. At the time, we had a negative 5 percent cash position, meaning we used a little leverage. We moved to a zero-cash position.

SM: And now? Where do you see the most upside?

JM: We are very interested in energy and commercial real estate. As for the latter, it took a big hit during the financial crisis. But the real estate market -- in which we primarily invest through limited partnerships and direct investments in specific properties -- is large and complicated. And there are some very interesting pockets now.

Vital Stats

Photograph by Dylan Coulter for SmartMoney

Assets Under Management: $469 billion

12-Month Returns Through 6/30/11: 21%: 32%

Resume: He joined TIAA-CREF in 1987; since 2006, he has been in charge of investment strategy for the pension and mutual fund products.

Boldest Bet: An enormous investment in farmland. TIAA-CREF is now one of the country's major owners of agricultural land. He also has bet big on high-yield bonds. (Investors, he says, "are well compensated for the extra risk.")

Edward Grzybowski

Chief Investment Officer, TIAA-CREF

Edward Grzybowski generally isn't satisfied with merely reading the financial statements of the investments in the portfolio he oversees for America's teachers; he likes to walk them. While most investors don't get mud on their boots when doing their due diligence, Grzybowski's employer, TIAA-CREF, has devoted a significant chunk of its $469 billion in assets to agricultural properties and natural resources from Canada to Brazil -- a fact that has the 58-year-old money manger doing plenty of fieldwork. On a recent visit to an 8,000-acre farm in Champaign, Ill., for example, Grzybowski was impressed when a computer enabled the farmer to discover which fields were underproductive. The new emphasis on technology, he says, is one of the key reasons he thinks the value of his agricultural investments will continue to rise.

TIAA-CREF has a long and storied history. Among other things, the company is credited with inventing the variable annuity. Formed in 1918 as a pension system for college professors, the Teachers Insurance and Annuity Association (TIAA) launched the College Retirement Equities Fund (CREF) after World War II so that educators might include stocks in their retirement plans. During the 12 months ended in June, the $112 billion CREF stock account returned 32 percent, one percentage point ahead of Standard & Poor's 500 index. But Grzybowski, who plans to retire this spring, says it's the long-term performance that matters. To him, the recent volatility in the markets is just "noise."

SmartMoney: How are you managing your company's $230 billion bond portfolio in an era of ultralow interest rates?

Edward Grzybowski: We sell Treasurys to raise cash for other investments. We aren't avoiding the municipal bond market, but we're very selective when buying munis. Domestic high-yield bonds, though, are very attractive in the current interest-rate environment. Given the low default rates, we think you're being fairly compensated for the risk. If you pick the right single-B and double-B bonds, you can make money.

SM: TIAA-CREF puts a lot of emphasis on assets such as commercial real estate and farmland. What's your interest in these alternative investments?

EG: Because they often rise with inflation, they have benefits.

You can also generate a better income stream than you can with fixed income now. But what we are really looking for is a lack of correlation with the public securities in our portfolio.

SM: Do you think emerging markets will keep driving global economic growth?

EG: They'll continue to grow at a faster rate than the U.S. and Europe, because more people are entering the middle class. We like food companies based in countries like China.

We have also bought emerging-market debt and made direct investments in farmland in countries like Brazil.

SM: Will the European debt crisis continue to weigh on stocks?

EG: Absolutely. It is a major contributor to the recent volatility in the markets. Until the European sovereign debt crisis is resolved, it will definitely influence business and investor sentiment around the world.

SM: What's your outlook for the U.S. economy?

EG: We expect it to continue to grow from 1 to 2 percent

this year. And while that's not enough to bring down the unemployment rate overall, jobs are being created in some areas: Unemployment, for example, is at 9 percent, but it's only at 4.4 percent for college-educated people 25 years or older. In general, we are optimistic about the U.S. economy over the next five years. We like U.S. materials, industrials and manufacturing companies, especially those that are using technology to compete with the rest of the world.

Vital Stats

Photograph by Greg Ruffing for SmartMoney

Assets Under Management: $100 billion

12-Month Returns Through 6/30/11: 21%: 8%

Resume: She joined Allstate in 1990 as a municipal bond manager and became chief investment officer at the beginning of 2009.

Boldest bet: Making well-timed trades on municipal bonds beginning in 2008; Greffin pared Allstate's muni holdings before broad market sell-offs and moved into high-grade corporate bonds.

Judy Greffin

Chief Investment Officer, Allstate

Judy Greffin was sitting in a meeting with the board at Allstate, her employer since 1990, on the bright September morning in 2008 when the news broke that Lehman Brothers had just collapsed. Traders soon began to hammer not only higher-yield junk bonds, but high-grade corporate notes as well, pricing the bulk of issues as if default rates would be much worse than they were during the Great Depression. Suddenly, it was decision time for the veteran fixed-income manager, who had recently become the chief investment officer of the company's largest operating unit and who would, in a matter of months, be in charge of the company's entire $100 billion in investments: Should she sell along with the herd or hold on in the midst of the torrent? Greffin, now 51, did neither. Instead, she chose a third option: keeping the insurer's massive bond portfolio intact, but sharply lowering its exposure to municipal debt -- a choice that would later look prescient. She refers to this period as her "baptism by fire."

Like most insurance companies, Allstate primarily invests in bonds. The portfolio returned 8 percent for the year ended June 30, compared with 4 percent for the Barclays Capital U.S. Aggregate Bond index. Yet since taking the helm, Greffin has added more private equity to the mix. And she isn't afraid to make bold bets on occasion. How so? In the past, Greffin says, Allstate would have participated in infrastructure projects primarily through the bonds that finance them. But now she is making equity investments in actual roads and bridges, because she likes the idea of "owning real things," she says.

SmartMoney: What is your outlook for the U.S. economy?

Judy Greffin: We don't see the U.S. slipping into recession.

We are in the low-but-positive-growth camp. Unemployment will likely remain stubbornly high over the next three years, while the economy grows in the range of 2 to 3 percent a year.

SM: You reduced your fixed-income portfolio's stake in municipal bonds earlier than most bond investors. Why did you make that call?

JG: We are still a significant municipal bond investor. But we reduced our exposure overall and changed the structure of the portfolio to a higher quality. We started focusing more on state-level bonds and those for essential services, as in water and sewer systems. We also wanted less exposure to longer-duration municipal bonds. We still think issuers will face some challenges: Federal austerity, for instance, means that states might not get the support they need to provide some services.

SM: How are you positioning Allstate's $79 billion bond portfolio now?

JG: We like high-quality corporate bonds. We feel that corporate balance sheets are in pretty good shape. Though we are invested in high-yield bonds as well, we tend to be in double-B or higher-rated issues. We'll continue to have a modest holding in Treasurys -- but that's not a good place to earn returns now.

SM: And stocks?

JG: We are more of a macro player in the public-equity markets. Although they're more volatile, they tend to be fairly efficient, so we focus more on indexes than on individual stocks. We are also shifting so that we have less exposure to public markets and own more private-equity assets, which tend to be less volatile. So we are investing in commercial buildings and infrastructure projects, too.

SM: Which investments are you avoiding like the plague?

JG: Anything to do with residential real estate. At some point, there will be an opportunity to invest in residential real estate, but not yet. We are also reducing our exposure to the financial industry. For us, that would mostly be on the debt side.

SM: What is the one piece of advice that you would give to individual investors?

JG: Don't stretch for yield, even though interest rates are low. Stick with a diversified portfolio and move into things that people like to own, such as commercial real estate.