HARVARD MANAGEMENT COMPANY Harvard Case Solution & Analysis


Compare the performance of Harvard endowment vs. 60/40 portfolio and vs. TUCS median. How much value they have added over the last 30 years?

The year ended 30th June 2010 was a successful year for Harvard Management Company as compared to the performance of other funds like 60% equity and 40 % bonds funds and the TUCS median. Despite of the 20% annual increase in the spending of endowment in 2009 HRM still manages to add 13% value over the last 30 years. Moreover, if we compare Harvard endowment and 60/40 portfolio it can be clearly seen that in 2010 they performed really well and significantly put itself in better position in long term. Although the total endowment value fell this year but still they played well and especially after the global financial crises of 2008. If we talk about the performance of Harvard endowment, 60/40 portfolio and TUCS Median performance they showed they showed 10 years annualized rate of returns of 8.9%, 4.9%, and 3.1% respectively.Itcan be seen that Harvard endowment performance was better than other two portfolios. Moreover, if we compare performance over last 30 years, Harvard endowment outperformed 60/40 portfolio by 2.8% and TUCS median by 2.9%.Harvard endowment earned investment return of 11% as of June 30th, 2010.Conclusively Harvard endowment portfolio performed better than other two portfolios.

hmc case solution

hmc case solution

      Harvard   Harvard
  Harvard 60 Stock/40 Outperformance Outperformance
Period Endowment Bond over 60/40 TUCS Median over TUCS
Last 46 years 10.3 8.6 1.7 8.5 1.8
Last 40 years 11.1 9 2.1 8.9 2.2
Last 30 years 13 10.2 2.8 10.1 2.9
Last 20 years 11.7 7.8 3.9 8 3.7
Last 10 years 8.9 1.4 7.5 3.1 5.8

 Explain how HMC constructed the test in exhibit 15 which equation,diagram or concepts from class they would have used?

HMC created the stress test by using return on asset equation from class. Furthermore they calculated returns of different financial instruments and asset in the event of inflation, deflation and depression (global) HMC would have used the asset allocation concept from the class they also showed diversification.For portfoliorisk with different collection and categories of assets they used the idea of diversification in the construction of HMC stress test we can also see the variance of return between the various classes of asset.Ifwe look at Exhibit 15 of the case, they also constructed the returns in the event of stagflation where inflation rates are high, unemployment rate is also high and economic growth is slow.

They used CAPM, which is applicable in asset allocation. Moreover, the concept of CAPM is also used in case of the analysis of different risks in different industries. The beta is another concept they would have applied in the preparation of stress test. They also determined portfolio implications using mean-variance analysis: which combination of assets lower risks and increase return, they used historical data for estimations.

Explain how HMC conducted their optimal portfolio analysis?

a)    Which table displays their inputs?

b)    How did they arrive at these inputs?

c)     How did they Optimized the portfolio? Which equations, diagrams and concept they would have used from class?

d) Why did HMC constraints the result of optimization?

Exhibit 3, 5, 7, and 10 show the inputs through which HMC conducted their optimal portfolio analysis; they arrive at these inputs through using different concepts and techniques after detailed computations like in different markets they calculated returns which reflect performance of assets in various industries. They optimized the portfolio through using their funds in various industries, they used the historical information on different assets in terms of risk, return and correlation between assets from different sources because every industry has its risk class and associated risk.......................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Share This