The Harvard Endowment revises their asset allocation annually. What lessons from their approach could apply to Family Wealth Management?

Robert Phelan, CFA, GARP |
Categories
Investments

If you are interested in an actively managed financial plan, want to be involved in how those assets are managed and have more than $1 million to invest, give Concierge Financial Advisor, LLC a call at 813-436-3600. 

The asset allocation approach for Harvard's Endowment incorporates only 14.9% in publicly traded equities (stock) and has 67% allocated to hedge funds and private equity, which lack transparency and liquidity for retail investors. At Concierge Financial Advisor, LLC, we use a dynamic asset allocation with ongoing oversight management to actively manage the trade-off between expected returns and risk like a family hedge fund would employ.

Harvard Endowment Asset Allocation

“Harvard Endowment previously used a 60% Equity and 40% Bond asset allocation model for their endowment but changed it four years ago to a more dynamic asset allocation approach. The Harvard Endowment's asset allocation as of June 30, 2021, was: 34% private equity, 33% hedge funds, 14% equities, 8% cash, 5% real estate, 4% fixed income/TIPS, and 1% each to natural resources and other real assets. The following chart shows the recent history of the Harvard Endowment asset allocation.”  (1)

Changing Asset Allocation

Source: Harvard Management Company, Bloomberg Intelligence

Concierge Financial Advisor, LLC may use a dynamic asset allocation approach through its strategic and tactical models. However, we may integrate market risk hedging in a client's portfolios, but it is within the limits and bounds of hedging that the client pre-approved. In addition, if the expected return is too low for the risk in the market, then a portion of the client's assets may be temporarily moved to “Cash” or Treasury notes rather than hedging. Cash held within a client's portfolio is placed in a high yielding Money Market as a temporary haven, and no advisory fee is charged on cash positions.

“Harvard’s endowment performance may be poised to shine in 2022 after recent struggles. Our analysis of alternative asset classes shows hedge funds and private equity have negative excess returns in the best months for the equity market, and the opposite when stocks turn sour. Real estate investments show the reverse: positive excess returns when stocks do well, negative when they don’t. Over the past 15 years, hedge funds returned minus 6.2% in the 15 best months for the market, and plus 6.6% in the 15 worst. Real estate returned plus 0.6% when stocks had their best month, and minus 2.9% when equities faltered. “ (2)

References

  1. Patankar, Gaurav, and Kumar Gautam. “Bloomberg Professional Services.” Bloomberg.com, Bloomberg, 11 Jan. 2022, https://www.bloomberg.com/professional/.

  2. Comtois, James. “Harvard Endowment Gains 33.6%, Rises to $53.2 Billion.” Pensions & Investments, 14 Oct. 2021, https://www.pionline.com/endowments-and-foundations/harvard-endowment-gains-336-rises-532-billion.