Word: hmc
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Dates: during 1970-1979
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...matter what choices Harvard makes in the stock/bond mix, however, and no matter how successful HMC is in increasing annual income from the endowment, inflation stands in the wings ready to devour the most impressive investment record. Even the hundreds of millions the Harvard Campaign will tack on to the endowment will only delay the day of reckoning if double-digit inflation continues. In years of 10 to 12 per cent inflation, like 1974 or this year, the real value of the endowment will fall despite the best record in the stock and bond markets...
...entire endowment each year. But that strategy would leave no way to raise the value of the endowment's principal over the long run. Inflation has chopped the endowment's real value (measured in dollars adjusted for inflation) by half over the past 15 years, Cabot says. So HMC keeps a balance between stocks and bonds within Corporation guidelines of at least 50 and at most 70 per cent in stocks. The mix usually hovers between 55 and 60 per cent--less stock than most universities--but it could rise as high as 70 per cent as HMC picks...
This answer to the "asset mix question" is the centerpiece of Harvard's market strategy, but HMC also tries to use its flexibility to experiment in sophisticated fields like stock-lending, arbitrage and options. "These tools are not very well known in the investment business, and we want to know at least as much about them as anyone else," Putnam says...
...HMC keeps its lines to other universities open, too, mostly through Cambridge Associates, which pools information from 20 schools. "You get into trouble in this business if you just talk to yourself all the time," Cabot says. Stanford for example, has a successful record investing in real estate development, and Harvard has begun to experiment with venture capital. Cabot says there's no reason for colleges to keep their experiences to themselves...
...mixing such innovation into Harvard's traditionally ultra-conservative management, HMC has outpaced many other schools; it nonetheless remains far behind inflation. Both Cabot and Putnam, however, believe Harvard and its endowment will weather the current crisis. Cabot says inflation should become a more emotional issue. "Eventually, kids will be getting mad not about South Africa, but about the price of lettuce. South Africa is an important issue, but people haven't shaken their fists enough about inflation," he says. If they do, then Cabot believes the government could launch a crash energy development program that would spur the economy...