Case 2: Harvard Management

Case II: Harvard Management Company Due on Wednesday, April 17, 2002

How should Harvard manage its endowments?

The answer to this question should include a discussion on:

1. What should be the fund management objective be? What is the right risk profile for the endowment? What constraints should be considered, if any, to restrict the set of portfolio strategies [for example, should Harvard consider any restrictions on the types of investments]?

2. Should there be a long-term allocation target (like 60/40 stocks and bonds?) Should there be a "strategic" as well as a "tactical" target? If so, how often should either one be altered?

3. To what extent could or should the output of the optimal portfolio calculations be used in setting policy? (How does an optimizer work? What is good and what is bad about using one? What do you do if the optimizer gives an answer you do not agree with?)