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Investment Policy at the Hewlett Foundation
Purpose of the case
To provide students with the opportunity to discuss the design
of asset allocation policiesfor long-term investors, the design and
implementation of return overlay (or alphatransport) strategies,
evaluation of performance and risk exposure of hedge
fundstrategies, portfolio diversification, and investments in
non-liquid assets
Objectives
!fter completing this case students will understand"
# !sset allocation design$ %esign of overlay portfolios, also
known as alpha transport or porta&le alpha
strategies, to separate search from alpha from risk exposure'
The role of hedge funds in investors portfolios *ortfolio
undiversification+ The &enefits of specialiation versus the
&enefits of portfolio diversification The use of geometric mean
returns and arithmetic means returns as forecasts of
expected returns al long horions
Case Synopsis
This case examines the asset allocation decisions that the
.illiam and /lora 0ewlett/oundation (0*) is considering in early
$11+ !fter careful analysis of the financialchallenges and
investment opportunities the foundation is currently facing, the
chiefinvestment officer and his team are a&out to make three
asset allocations proposals to thefoundation committee which, if
approved will su&stantially change the foundationsinvestment
portfolio
/irst *roposal
!dopt a new allocation policy to reduce considera&ly the
foundations portfolio ofdomestic equities and instead increase the
allocation to a&solute return (or hedgefund) strategies and 23
T4*3 (Treasury 4nflation *rotected 3ecurities) This
recommendation is &ased on a detailed asset allocation study
that includes a re-valuation of 0/s long-term pro5ections of
capital market conditions
$
3econd *roposal 4mplement
a return overlay program for the a&solute return portfolio
This recommendationis &ased on a study of the historical
performance and risk exposure of the
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$ .hat is the impact on the expected return on the a&solute
portfolio of theproposed overlay portfolio, which involves exposure
not only to domestic equities&ut also to &onds and
inflation indexed-&onds7 .hat are the risks7
' 0ow can 0/ implement the return overlay program (&ondie
and equitie itsa&solute return portfolio)7 3hould 0/ &ondie
and equitie the a&solute return
portfolio7 .hat are the advantages and disadvantages of
investing in 3irius
