There was an interesting article in the year-end BusinessWeek about Harvard's massive endowment fund and an interview with the management's CEO, Jack Meyer. You may need a subscription to read those links.
What wasn't in the online articles was the table of Harvard's unique asset allocation.
15% US equities
13% Commodities (about 3/4 of this part is in timber)
13% Private Equity
12% Hedge Funds
11% US Bonds
10% Foreign Equities
10% Real Estate
6% Inflation Index Bonds
5% Emerging Markets
5% High Yields
5% Foreign Bonds
-5% Borrowed Money
Some of these things are not very accessible to most folks, like the Private Equity and Hedge Funds. Timber can be accessed through a couple of different REITs, my clients have owned one of these for a long time and I continue to add the same name now for new clients.
One of the interesting things about this allocation is the, effectively, 40% equity weight in Foreign stocks. I am a big believer in foreign, my clients have about 30% of their equity exposure in foreign these days.
One thing I wish would have been addressed is why they feel the need to borrow money.
Anything you can read about what Harvard is doing is good stuff.
We have our electricity back so I'll be able to catch up on emails today and post again later.
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5 comments:
The Harvard portfolio is a nicely diversified portfolio. Those guys are smart but I'm not so sure about the allocations.
Humor me and assume that you believe the dollar is about to turn and show significant strength. What would you buy and what would you sell?
I've done tons of study about HMC and Jack Meyer. The allocations make perfect sense. Multiple high beta assets with low correlations. Each of the different asset classes offer substantial returns over traditional bonds.
HMC doesn't care if EM's lose 10 b/c something else will be negatively correlated at hedge the position.
HMC also does no tactical allocation. They don't believe they can add value over the short run.
They set up trading parameters (asset allocation policy) which they adhere to. It's their asset allocation policy that is great, not just their secuity picking skills.
If you took a standard asset allocation over 10 years and compared the results to their allocation (index returns only) you'd see 300 bps annualized outperformance.
Some great reading on them can be bought at Harvard Business Online or at the Yale IMC site.
Check out this article, which has the endowment's historical allocations and returns.
All-weather portfolio: how Harvard and Yale endowments invest for bad times
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