The Long Term Allocation of Assets.

Questions Summary

Questions Coming from PPT

1.Summarize: Q5

1)Discuss why did the dismal performance happened? Q14

Because of the long term allocation of assets. Illiquid assets; Increasing pressure on cash needs; liquidity pressures arisen in large interest rate swaps; uncalled capital commitment exhibit 11 exchange rate risk.

2)How may the investment policy be improved given the disastrous performance in the year till June 2009?

Increase the cash liquidity. benchmark in policy portfolio. Change the ratio between internal and external agency.

2.Going Forward:

1)What do you recommend for future asset allocation of Harvard’s investment portfolio?Q14  Q15

2)Should Harvard spend down its endowment?  (optional)

No. inflation rate fluctuate. Problem is investment not spending  

 Questions Coming from Case

1. In the past decade, there had been a significant shift of assets from internal to external management.Was the current split between internal and external assets optimal?

No.

1. What was the right number of external funds Harvad should invest, weighing the benefits of diversification against the higher costs and risks of monitoring a larger number of investments?

Optimization

1. With respect to liquidity,was the endowment now appropriately positioned? Q14

No. in 2008 the cash was -5.

1. Should there be a Liquidity Benchmark in addition to the Policy Portfolio benchmark?

Yes.

1. With respect to overall risk posture, should the fact that endowment spending now accounted for more than a third of the total University budget(up substantially over the past two decades) influence the endowment’s risk profile?

No. the revenue also went up. Endowment spending is still 4.1% compare to total endowment

1. Should Harvard care about its own asset allocation policies compared to those of similarly situated universities? Q18

YES Harvard’s policy allocation to public equities was relatively highits allocation to private equity was relatively low, and tis allocation to absolute return was also on the low side.