Investment Management at Harvard Management Company
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ICMR HOME | Case Studies Collection
Case Details:
Case Code : FINC056
Case Length : 19 Pages
Period : 2000-08
Pub. Date : 2009
Teaching Note :Not Available
Organization : Harvard Management Company
Industry : Financial Services
Countries : UK/India
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Introduction Contd...
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The University attributed these cost-cutting measures to the
losses incurred by Harvard Management Company (HMC). HMC managed Harvard's
endowment funds, the largest in the industry. As of June 30, 2008, it managed
assets worth US$ 36.9 billion. Harvard reported that the value of the assets had
fallen by 22% in the four months of fiscal 2008-09 that ended on October 31,
2008. The losses reported in this case did not include HMC's investments in real
assets and private equity.
Harvard depended on its endowment to fund more than one-third of its operational
budget every year.
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It withdrew US$ 1.6 billion from its endowment fund in the
fiscal year 2008 that ended on June 30, 2008. This marked HMC's largest ever
endowment payout to the university. Harvard estimated a loss of 30% on the
assets of HMC for the current fiscal year that would end on June 30, 2009. This
would be the worst loss reported by HMC since 1974 when it had posted a loss of
12.2%. HMC announced that it would lay off 25% of its 200 employees as a part of
its reorganization and rebalancing strategy.
HMC was regarded as one of the most profitable managers of endowment funds
(Refer to Table I for returns generated by top four endowments in the US for the
financial years 2005 to 2008)...
It consistently outperformed the average returns posted by the industry which invested in similar asset classes in which HMC invested. For instance, HMC posted a positive return of 8.6% on its funds for the year ended June 2008 as compared to a 13% negative return posted by the S&P 500 index5 during the same period. HMC was renowned for its asset allocation strategy. It followed a hybrid model in managing its funds...
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