Investment Policy at the Hewlett Foundation

Group Assignment: Investment Policy at the Hewlett Foundation

1. How does the HF manage its assets?

Since HF is a non-operating foundation, it is required to annually distribute 5.25% from their three-year moving average of asset value. Another restriction in being a foundation is that HF has to generate their income solely from their invested assets. Due to these conditions, HF has pursued an investment strategy that entails holding a diversified portfolio while optimizing the tradeoff between risk and return. HF diversifies their portfolio by investing in several asset classes including domestic equity, foreign equity, private equity, real assets, absolute return, and domestic bond. Moreover, the investment team would update their capital allocation structure based on the market conditions and available investment opportunities. Since HF hires different managers to run each of the asset class investments, they tend to allocate more capital in the asset classes where they believe to have an advantage in picking quality managers. HF also holds small amount of donor stocks apart from the portfolio of diversified asset class and believes that having these stocks is only increasing the volatility of the portfolio without adequate increase in return. Therefore, they have strategically sold these stocks, ending with stocks being only a small percentage of the foundation’s total asset value.

2. Is HF’s newly proposed asset allocation policy adequate to meet the foundation’s long-term spending goal of sustaining a long-term real (or inflation-adjusted) payout ratio of 5%, while preserving capital in real terms? Is it adequate to meet its short-term objective of maintaining consistent spending without sharp fluctuations?

The newly proposed allocation will be able to meet the short-term and long-term spending goal since it will generate a higher expected return compared to previous years. While standard deviation increases with the new allocation, so too...