Investment and New Asset Allocation
Investment policy at the Hewlett Foundation:
- Current value of portfolio: 6.4 billion (Most the money came from Steve Hewlett-donated company stock-to make the world a better place)
- Give away 5% every year→or else they are subject to taxes
- Target rate of return: 5%+inflation
- Change allocation policy when capital markets change or if there are new investment opportunities, law changes, or risk aversion changes.
- Investment committee: 3 board members and 3 non board members
- New asset allocation policy: o Reduction in exposure to of the investment portfolio to domestic public equity (31% to 20%) o Increase in allocation to absolute-return strategies (hedge funds-make profit whether market goes up or down) (10%-20%) and TIPS (from 7% to 13%)→because lower yields and low inflation (intended to keep portfolio for shorter duration than 10 year treasury bond) o Combine the increase in the allocation to absolute-return strategies with an “equitization” and “bondization” program. o Overall effect: small increase in Sharpe ratio and the foundations entire portfolio. o Domestic bonds return: 4.4% o T-bills: 4.4%-20 basis points = 4.2% o Total return on equity= 4.2%+4%(premium)=8.2%
- Why impose new allocation plan: to transform market-neutral exposure of the strategies into exposure to domestic equities, domestic bonds, and TIPS.
- Normally paying 17 for a dollar of earnings, currently paying 24 per dollar of earnings (prices going up, not the right time to go into the market)→lower returns.
- Risk premium is going down, dividend yields are lower than normal, and prices are higher than normal!
- 120% by using leverage of 20%
- Donor Stock-Sale Program: o They got shares from Hewlett ($4.1 billion in shares) o Sale of shares in order to diversify their portfolio o 70% of portfolio is put into index funds o 30% goes into active managers (don’t believe they can beat the index)
- Absolute return Portfolio: o Make money under any
- Current value of portfolio: 6.4 billion (Most the money came from Steve Hewlett-donated company stock-to make the world a better place)
- Give away 5% every year→or else they are subject to taxes
- Target rate of return: 5%+inflation
- Change allocation policy when capital markets change or if there are new investment opportunities, law changes, or risk aversion changes.
- Investment committee: 3 board members and 3 non board members
- New asset allocation policy: o Reduction in exposure to of the investment portfolio to domestic public equity (31% to 20%) o Increase in allocation to absolute-return strategies (hedge funds-make profit whether market goes up or down) (10%-20%) and TIPS (from 7% to 13%)→because lower yields and low inflation (intended to keep portfolio for shorter duration than 10 year treasury bond) o Combine the increase in the allocation to absolute-return strategies with an “equitization” and “bondization” program. o Overall effect: small increase in Sharpe ratio and the foundations entire portfolio. o Domestic bonds return: 4.4% o T-bills: 4.4%-20 basis points = 4.2% o Total return on equity= 4.2%+4%(premium)=8.2%
- Why impose new allocation plan: to transform market-neutral exposure of the strategies into exposure to domestic equities, domestic bonds, and TIPS.
- Normally paying 17 for a dollar of earnings, currently paying 24 per dollar of earnings (prices going up, not the right time to go into the market)→lower returns.
- Risk premium is going down, dividend yields are lower than normal, and prices are higher than normal!
- 120% by using leverage of 20%
- Donor Stock-Sale Program: o They got shares from Hewlett ($4.1 billion in shares) o Sale of shares in order to diversify their portfolio o 70% of portfolio is put into index funds o 30% goes into active managers (don’t believe they can beat the index)
- Absolute return Portfolio: o Make money under any