An Evolving View of Asset Classes
Creating the optimal mix of investments
The underlying framework for our investment activity is the Policy Portfolio, a concept that has been employed by HMC for many years. The Policy Portfolio is a theoretical portfolio allocated among asset classes in a mix that is judged to be most appropriate for Harvard University from both the perspective of potential return and risk over the long term. The Policy Portfolio differs from a traditional stock/bond portfolio, including allocations to less-traditional and less-liquid asset categories, such as private equity, real estate, and absolute return strategies.
The HMC Board and management team set the Policy Portfolio and review it for continued fit with the University’s risk profile, as well as our projections of long-term market returns, volatility, and correlations. The Policy Portfolio provides us with a guide as to the actual allocation in the investment portfolio and also serves as a measuring stick against which we judge the success of our active investment management activities. As in any measure of investment performance, long-term results relative to the Policy Portfolio are most meaningful.