Case ID: 205126     Solution ID: 21657     Words: 1534 Price $ 75

Investment Policy at the Hewlett Foundation 2005 Case Solution

Case Solution

In the start of January 2005, Laurance Hoagland Jr., VP and CIO of the William and Flora Hewlett Foundation (HF), and his financing group had a meeting to complete their proposals to the HF Investment Committee related to a novel asset distributionprogram for the organization’s financing portfolio. If the recommendation was agreed to, HF would implement a novice asset distribution program which involved a significant decrease in the general exposure of the financing portfolio to local public shares and equities and a substantial rise in the provision to complete return plans and TIPS. Hoagland and this group must also determine on a corresponding proposal to the HF Investment Committee to promise an estimate 5% of the endworth of the portfolio to Sirius V, the most recent fund at Sirius Investments, which held expertise in internationaldepreciated real estate funding.

Excel Calculations

Effects of "Bondization"and"Equitization" on Portfolio Risk and Return

Assets     Return      S.D      Allocation (without overlay program)     Allocation (with overlay program)

Covariance Matrix

Domestic equity     Foreign equity     Emerging market equity     Private equity     Real assets Absolute return    Domestic bonds   TIPS      High yield    Cash

Questions Covered

What are the financial issues facing the Hewlett Foundation (HF)? In particular, is HF’s newly proposed asset allocation policy adequate to meet the foundation’s long-term spending goal of sustaining a long-term real (or inflation-adjusted) payout ratio of 5%, while preserving capital in real terms? Is it adequate to meet its short-term objective of maintaining consistent spending without sharp fluctuations?

How does HF manage their assets?

Is HF’s donor stock sale program a good idea?

Are a member of HP’s Investment Committee, would you agree with the proposals to:

A.    Double to 20% the allocation to absolute return strategies?

B.     Implement the bondization and equitization overlay program?

C.     Make the 5% commitment to Sirius V?

      5. With respect to b), what would be the effect of the bondization and equitization overlay program on the expected return of the absolute return portfolio? Which contracts would be the most effective for HF to utilize?