The Harvard Management Company and Inflation Protected Bonds
The Harvard Management Company and Inflation Protected Bonds
Executive Summary
The Harvard Management Company (HMC) was established in 1974 with the goals providing world-class investment management focused solely on generating strong results to support the educational and research objectives of Harvard University. The company’s goals are to correctly measure Harvard University’s financial requirements and to provide investment opportunities that will accurately meet or exceed them with the lowest amount of risk assumed by the institution.
In order to best meet these investment needs the Harvard Management Company must continually revise the Harvard Policy Portfolio, which denotes how assets will be allocated across all available asset classes. This is necessary because new information in the market allows HMC to be more efficient in their investment strategies. Changes to this Policy Portfolio are made only in response to (1) changes in the goals or risk tolerance of the university as an institution, (2) changes in capital market assumptions, or (3) the appearance of a new asset class in the market.
Recently, reasons 2 and 3 were met in order to call for a new proposal to the Harvard Policy Portfolio. The introduction of Treasury Inflation-Protected Securities into the market in 1997 added new investment opportunities at different risk/return levels. Because these new securities have been producing a protected return higher than what had been the assumption for bonds, previously, new market assumptions must be made.
In order for the Policy Portfolio to remain efficient the HMC must invest in TIPS. The historical information is a small sample, so they should not invest as exuberantly as the optimization calculations suggest, but their investment in TIPS at a rate of 7% should help assist their efficiency.
Introduction:
Jack Meyer, President and CEO of the Harvard Management Company (HMC), Inc., had many times prepared changes to
Executive Summary
The Harvard Management Company (HMC) was established in 1974 with the goals providing world-class investment management focused solely on generating strong results to support the educational and research objectives of Harvard University. The company’s goals are to correctly measure Harvard University’s financial requirements and to provide investment opportunities that will accurately meet or exceed them with the lowest amount of risk assumed by the institution.
In order to best meet these investment needs the Harvard Management Company must continually revise the Harvard Policy Portfolio, which denotes how assets will be allocated across all available asset classes. This is necessary because new information in the market allows HMC to be more efficient in their investment strategies. Changes to this Policy Portfolio are made only in response to (1) changes in the goals or risk tolerance of the university as an institution, (2) changes in capital market assumptions, or (3) the appearance of a new asset class in the market.
Recently, reasons 2 and 3 were met in order to call for a new proposal to the Harvard Policy Portfolio. The introduction of Treasury Inflation-Protected Securities into the market in 1997 added new investment opportunities at different risk/return levels. Because these new securities have been producing a protected return higher than what had been the assumption for bonds, previously, new market assumptions must be made.
In order for the Policy Portfolio to remain efficient the HMC must invest in TIPS. The historical information is a small sample, so they should not invest as exuberantly as the optimization calculations suggest, but their investment in TIPS at a rate of 7% should help assist their efficiency.
Introduction:
Jack Meyer, President and CEO of the Harvard Management Company (HMC), Inc., had many times prepared changes to