Read the Case Study "Investment Policy at the Hewlett Foundation (2005)" and below are the questions that need to be answered:
1. Provide a brief summary of the case
2. Was HF's donor stock sale program a good idea? In your discussion you need to provide arguments in favor and arguments against the program.
3. What are the financial issues facing the Hewlett Foundation (HF)?
4. Describe how HF manages its assets.
5. Is the proposed allocation adequate to meet the HF's long term spending pay out of 5% (inflation adjusted) while preserving capital in real terms and avoiding short term fluctuations in spending?
6. As a member of HF's Investment Committee, would you agree with the proposal to double to 20% the allocation to absolute return strategies? To support your decision, in your discussion you must provide arguments in favor and arguments against the proposal.
7. As a member of HF's Investment Committee would you agree with the proposal to implement the bondization and equitization overlay program (alpha transport)? You need to discuss the effect of these programs on the expected return of the absolute return portfolio and what contracts will be most effective for HF to utilize. To support your decision you must provide arguments in favor and against the proposal.
8. As a member of the HF's Investment Committee would you make the 5% commitment to Sirius V? You must provide arguments in favor and arguments against the proposal to support your decision.
9. Give a summary of your recommendation for the three proposals.
10. Include an Appendix with the Lessons Learned From the Case.
11. What are HF's objectives as a foundation (Exhibits 1a and Exhibit 2)? What is the role of HF's Laurie Hoagland and his investment team?
12. How HF's philanthropic objectives translate into specific objectives for the endowment (Exhibit 3a)?
13. What investment policy could HF adopt to achieve simultaneously its two objectives of maintaining its asset based in real terms and avoid fluctuations in spending (Exhibits 3a and 4?
14. Is the volatility of the proposed portfolio too high or too low? What alternatives can you offer?
15. Should HF adopt highly levered mean-variance portfolios instead of the proposed portfolio?
16. Review of HF's capital market assumptions. Does HF think that returns are predictable?
17. Given HF's views on capital markets, is 5% real spending rate compatible with the proposed investment policy?
18. If you were a member of HF's investment committee would you approve the proposal to double the allocation to absolute return strategies (hedge funds) from 10% of assets (or about $600 million) to 20% of assets (or about $1.2 billion (Exhibits 6, 8a, 8b, 9a and 9c)?
19. What additional questions would you ask Laurie Hoagland before approving (or rejecting) the absolute return strategy?
20. How a return overlay strategy (also known as "alpha transport" or "portable alpha" strategy) works in a simple setting, for example, one in which HF transports the expected alpha in the absolute return portfolio into the S&P 500?
21. What is the impact on the expected return on the absolute portfolio of the proposed overlay portfolio, which involves exposure not only to domestic equities but also to bonds and inflation indexed-bonds? What are the risks?
22. How can HF implement the return overlay program ("bondize" and "equitize" its absolute return portfolio)? Should HF "bondize and equitize" the absolute return portfolio?
23. What are the advantages and disadvantages of investing in Sirius V, the global distressed investment fund (Exhibits 10, 11, 12a and 12b)? Should HF pledge up to 5% of the endowment to Sirius V?