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1. What is Harvard’s policy portfolio? How is it determined?

Q3.) What is Harvard’s Policy Portfolio? How is this portfolio determined?

Harvard Management Company’s policy portfolio is based on the principle that allocates the funds to different asset classes with respect to the differing risk and return profile of the asset classes, meanwhile, policy portfolio allocates …………………

2. How does HMC develop its capital market assumptions? Why does HMC focus on real returns when making its forward-looking view of expected returns and risk? (***)

Q4.) How does HMC develop its capital market assumptions? Why does HMC focus on real returns when making its forward-looking view of expected returns and risk?

While developing the capital market assumptions Harvard Management Company has taken into account the standard deviation of returns and value of asset classes, returns generated from an investment and the associated risk with the investment in each class of asset and the correlation between each class of asset, meanwhile, the HMC has attempted to manage the declines in assets by investing in the opposite correlated asset classes in order to avoid the magnitude of variances in investment portfolio.

However, in order to acquire a diverse profile of asset classes HMC has gathered the data of asset classes which is based on the real and risk adjusted measurement methods and gather this data is based on long period of historical values so that this statistically collected data can be used for additional analysis. Furthermore, the data collected on the returns as adjusted with the consumer price index figures so that the changes in the economy can be incorporated in order to arrive at the real rate of return so that the returns effectively reveals the different characteristics of the underlying asset and the use of money rate of return is avoided. In this way the asset classes would be better compared with international asset classes and would suite HMC as...