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Investment Policy at the Hewlet Foundation

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SAMANTHA JOHNSON

on 8 April 2014

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Transcript of Investment Policy at the Hewlet Foundation

Hewlett Foundation
In 1966 the Hewlett invested a vast amount of their wealth in a nonprofit foundation
In 1977 Mrs. Hewlett passed away .
In 1977 the nonprofit foundation renamed their foundation to Hewlett Foundation
In the beginning of 2005 the Hewlett Foundation investment portfolio valued at $6.4 Billion
Hewlett CIO Laurie Hoagland call a meeting to discus the foundation future financial state.
In the meeting financial mangers came up wih three proposals
Case Summary

Stocks donated by Hewlett to the Hewlett foundation
The longer they keep donors stock the more risk the may endure
Due to the risk Hewlett Foundation wants a higher premium for their donors stock than their domestic equity.
Donor Stock Program
Needed to maintain 5.5% asset base to stay tax exempt
Needed to pay out 5% per year
Needed to create a new asset allocation policy to address problem

Financial Issues
Maintaining a asset base
Well-diverse portfolio
Monitors portfolio by
Comparing performance to benchmark
Comparing performance with different stocks with similar risk
Comparing returns to similar investors with similar parameters
Whether investment return exceed 5% inflation

Asset Management
Adopt a new allocation policy to reduce risk by increasing usage US TIPS and absolute return asset class
Proposal 1
Proposal 1 : Accept
reduce risk
greater future expected return
Proposal 2: Reject
Alpha of 2%
Not enough information
Proposal 3- Reject
Portfolio risk
Reputation
Recommendation
Implement a return overlay program for the absolute portfolio

Proposal 2
To commit to 5% of assets to a global distressed real estate investment fund
Proposal 3
Investment Policy at the Hewlet Foundation
Pros
Profitability past track record
skilled and qualified fund manager
Multicultural database of Real Estate
Con
Volatile Market Exposure
Bad Investment Trends
Increased Competition
illiquid asset
Pros
Expected higher overall return over the long run
Main risk is the alpha

Cons
Must market on consistent basis
Losses must be stated
May cause grant-giving problem
Short terms investment does not fit with fund objective
Leveraged returns- higher risks

Hewlett Foundation
Long Term Spending
Allocation is not adequate to meet long term spending pay out of 5%
HF can buy fixed income
Forecast for TIPS is 4%
Take risks
Possibility of nor having enough assets bases

Absolute Return Strategies
Proposed to double to 20% the allocation to absolute Return strategic
Policy more volatile
Can get bigger return but can face huge losses
Outperform t bills
Investment twice the amount
Extremely risky

Pros
higher returns, lower volatility
Access to top Managers
Set allocation similar to peer group's
Cons
Supply and Demand issues
Higher associated costs
Public relation problems
Full transcript