Susan Griffin: Formulation of a Long-Term Investment Strategy Harvard Case Solution & Analysis


Susan could further mitigate her risk by going for global investment. This would mitigate the risk of Susan coming from the domestic economy and its market situation. The portion of the total investment of $ 10 million which needs to be invested in the global stocks should be around 10-15 % of the 40% investment in stocks. This would help the company to mitigate the risks of domestic markets but on the other hand it might pose a problem of less control over the allocation of the foreign funds. However, this would mitigate the overall risk of volatility faced by Susan.


Susan also thought of whether she could invest or not. It is highly recommended for Susan that she does not invest in real estate. The risk is very high. If we look at exhibit 5a, it can be seen that after emerging markets, real estate has the second largest risk of around 22%. There seems to be a very limited opportunity for real return. Also the investment in real estate is very illiquid.


This is certainly a very high risk alternative for Susan and this is totally not advisable. These types of funds are only limited to high net worth and institutional investors because the risks associated with this are numerous. These funds require huge capital investments and they are not monitored by even any regulatory authority. Therefore, the risks involved here are very high so Susan should not even consider this option.


Private equity is basically the capital that is pooled by institutional investors and also by high net worth individuals. The funds raised are than used to purchase the shares of public companies or even private companies. These investments are made for a period of around 4 to 5 years. This option is too risky for Susan. Although, this would provide the company with great investment returns, but it is still too risky option for Susan given the conservative approach of Susan.


In most of the types of investments normally the most significant risk is the risk of exposure uncertainty. This risk is very much high in venture capital funds. When investors invest in venture capital funds, they do not know in which country or city their investment will be used. Therefore, due to globalization the investors do not know about their real exposure. For example, if Susan invests in a venture capital fund, that investment might go to China. Now the investor’s investment will have a unanticipated risk due to unanticipated exposure to the Chinese market and the legal system of China.


Susan is also confused between the choice to either choose a small money management firm or a large money management firm. Since, Susan wants to be an active investor, but also she does not want to take complete responsibility, therefore, she should avail the services of a small money management firm. The services of a small firm will accept small requests being made by her and they will also give her personal attention.


As Susan starts to make investments in bonds, stocks and cash assets, all of these investments will be exposed to the increase in inflation risk. The inflation will increase over the period of time. This will least affect the cash assets. In case of bonds, the interest rates on bonds have been low recently due to higher inflation risk which would erode the purchasing power of the investment over the time. Therefore, in order to counter this problem and provide an alternative to the institutional investors the government has introduced Treasury inflation protected securities (TIPS). This is a type of bond which is CPI adjusted so that the returns of the bond keep the same pace of the inflation in the economy. Therefore, Susan can also make some investment in these bonds so that here income plan is inflation protected. With regard to equity, the stocks of a company are highly exposed to the rate of inflation. This would affect the stock returns significantly. In order to mitigate the inflation risk here, Susan should go for diversification of her investment in different asset classes, including the investment in international stocks. This could provide some protection against inflation....................................

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