Hmc Case Study

365 Words2 Pages
1. Is HMC’s recent payout policy consistent with the goal of preserving the real (adjusted for Harvard’s expense growth) value of the endowment and its distribution into perpetuity? Yes. From Exhibit 1. We can see that HMC’s recent payout is round 3.4% to 4.6% (1993-2000). It is lower than the target 4.5% to 5.0% range. And Harvard Endowment is really out performed to TUCS Median (1993-2000). From Exhibit 9. 2. Could payout be raised to meet recent budget pressures without changing the risk-return profile of the portfolio? No…. 3. What value has the HMC’s policy portfolio asset allocations (compared to TUCS median) added to the endowment from the period 1992-2000? 15.9%-13.7%=2.2% (not sure the answer should be number or discussion) 4. What value has active portfolio management (deviating from the policy portfolio indexes and weights) added to the endowment from the period 1992-2000? 18.9%-13.7%=5.2% (not sure the answer should be number or discussion) 5. Does this justify their controversial compensation plans? Does HMC’s compensation plan reward value-creation, discourage excessive risk taking, and increase retention. Yes, this result somewhat justified their controversial compensation plans since Harvard endowment outperformed the university average. The plan did reward value-creation by encouraging their managers beat the benchmark and providing high incentives; but encourage excessive risk taking (more weight on Foreign equities, foreign bonds) and decrease retention (cash negative). 6. How does Harvard’s new policy portfolio weights compare to historical weights and other university endowments? Harvard’s new policy portfolio weights compare to its historical weights: the new policy portfolio significantly increases the weight of foreign equity, emerging markets, private equity, absolute return, high yield bonds, commodity-related
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