FINA 3336 – Institutional Investment

Consulting and Family Office

Faculty of Business and Economics
The University of Hong Kong
LECTURE #1
6 Sept 2024
Who are we?

Janet Li, CFA, MAoF, is the Chief Executive Officer of BEA Union Investment Management Limited. Prior to joining BEA Union
Investment, she was the Wealth Business Leader for Asia and a Partner at Mercer where she led the Investment and Retirement
business of the firm in the region. Before this, she was the Director, Investment Services, Greater China at Willis Towers Watson where she
was a core member of the Asia leadership team. Throughout her 20+ years of investment consulting career, she has vast experience
working with institutional clients and platforms on their portfolios and across diverse types of asset classes ranging from public to private
markets investments.

Janet makes active contribution to the investment and pension industry by bringing thought leadership and via her pro bono work in
the community. She is currently serving as the Chairman of the Executive Committee of the Hong Kong Retirement Schemes
Association.

Edmond Lau is the Senior Investment Director at Far East Consortium International Limited (FEC, HKEX: 0035) responsible for the treasury
management and strategic investment, dealing with various financial institutions on daily basis, including investment banks, private
banks, fund managers and other family offices.

Mr. Lau was an Executive Director at J.P. Morgan Securities (Asia Pacific) Limited. He held senior positions in financial derivatives
distribution for financial institutions and family offices in Asia Pacific for over 10 years. Mr. Lau began his career as an Executive Trainee
with the Securities and Futures Commission (SFC) of Hong Kong.

Before joining HKU, Mr. Lau also had lectured at CUHK business school and HKU Space workshops.
Course description

► The course will be led by two experienced industry practitioners and aims to provide a
conceptual and practical approach for students to understand the institutional investment
consulting and family office businesses. The students will learn about the real-life business
challenges and the most updated insights into the industry developments as well as innovations,
such as ESG and Fintech.

► Student will also be able to learn and acquire the practical skills used in the institutional
investment consulting sector that manages over trillions of dollars globally as well as the family
office sector that has become the new pillar in the asset and wealth management industry.

► To enrich students’ perspective, seasoned industry practitioners from global and leading funds,
family offices and private banks will be invited to join the interactive lecture sessions with the
students.
Course objectives

► The course aims to provide a conceptual and practical approach for students to learn about
how to create and execute an investment process, which includes setting the investment
objectives, defining investment procedures and executing risk management for different
institutional clients, including sovereign funds, public funds, endowment funds,
pension/retirement funds, corporate funds and family office managed fund.

► The course will also provide further insights into each discipline - for investment consulting side,
students will learn about how investment consultants help the institutional investors develop
investment objective/policy/guideline, select asset managers and evaluate managers’
performance; while for family office side, students will learn about the purpose and procedure
for setting up family office (single and multi-family) and the day-to-day interaction between the
family office investment team and the other business partners such as investment banks, private
banks and fund houses. The course will provide students with useful development of the asset
and wealth management industry and prepare students to pursue a career in institutional
business, family office business and the finance industry in general.
Course objectives

► Afterall, the course will provide opportunity for students to learn and acquire practical skill sets
and useful knowledge from the asset and wealth management industry. It also helps students
who are interested in pursuing a career in institutional business, family office business and the
finance industry in general.
 Housekeeping 1

► 11 Lecture dates on Friday 2:30pm – 5:20pm:

Assessment method Brief description Weight
▪ Sept: 6, 13, 20, 27

▪ Oct: 4, 25 Classroom participation 10%

▪ Nov: 1, 8, 15, 22, 29
In class presentation In groups of 5-6, work on portfolio set-up 20%
► 4 Oct and management analysis relating to
▪ Mid-term project presentation (during lecture) an institutional investor and/or a family
office. Assessment will be based on a
▪ Mid-term assignment (TBC) maximum of 20 minutes in-class
presentation and a 10 minutes Q&A
► 13 Dec (by 6pm) session.
▪ Take-home examination
Mid-term take home On an individual basis, each student 20%
assignment has to submit a short paper of not more
► 4 guest speakers: 25 Oct, 1 Nov, 15 Nov & 22 Nov than 1,500 words addressing a question.
Final take home In essay form, addressing one or two 50%
Please nominate yourself to help moderate a session
examination questions, of not more than 4,000 words
in total.
Housekeeping 2

► Attend the lessons (10% of assessment)

► We are practitioners – the industry keeps evolving and we are to connect you with the real world.
► Your time is valuable and so as ours – we would like you to get the most out from the lessons and
so please make it as interactive as possible!
► Your tutor:
► Non-compulsory 30 minutes session with tutor on Mid-term Project
► We can be reached
► Janet Li: [email protected]
► Edmond Lau: [email protected]
► Jessie Leung: [email protected]
Institutional
Investment The ecosystem

Consulting
Consulting Ecosystem

Asset Managers/ Private Clients

Investment Consultants
banks $$$

Asset Managers/ Private

banks

Asset Managers/ Private

banks

Custodians, trustees, administrators etc.

What is an Investment Consultant?

► An investment consultant is a financial professional who provides investors with investment products,
advice, and/or planning. Investment consultants do in-depth work on formulating investment
strategies for clients, helping them fulfill their needs and reach their financial goals. Many financial
advisors and financial planners would be considered investment consultants.

► Investment consultants have experience in many different facets of the financial world and may
work for a bank, investment firm, or independently. They are usually educated in a financial field, must
have experience in the financial services industry, and must be licensed to work.
 Types of Investment Consultants

► Investment consultants may fall into four main categories:

► Registered Representatives: These are investment consultants, including stockbrokers and banking
representatives, who are paid a commission to sell investment and insurance products. They work for what is
known as sell-side firms—financial organizations that create, promote, and sell financial instruments. Registered
representatives typically hold a Series 6 or Series 7 license.
► Financial Planners: Investment consultants who manage their clients’ personal finances are known as financial
planners. They may develop a financial plan to help a client manage college tuition fees. Qualified financial
planners hold a certified financial planner (CFP), certified public accountant (CPA), or personal financial
specialist (PFS) certification.
► Financial Advisors: These investment consultants give general and personalized financial advice. Their
compensation is based on charging fees, and they typically hold a Series 65 or Series 66 license.
► Money Managers: Investment consultants who make investment decisions on behalf of a client are called
money managers. Money managers work for buy-side firms such as asset management firms, fund managers,
or hedge funds.
 What is an Institutional Investor?

► An institutional investor is a company or organization that invests money on behalf of other people.
Mutual funds, pensions, and insurance companies are examples. Institutional investors often buy and
sell substantial blocks of stocks, bonds, or other securities and, for that reason, are considered to be
the whales on Wall Street. The group is also viewed as more sophisticated than the average retail
investor and, in some instances, are subject to less restrictive regulations.
 Retail Investors vs. Institutional Investors

► Retail and institutional investors are active in a variety of markets like bonds, options, commodities, forex, futures
contracts, and stocks. However, because of the nature of the securities and the manner in which transactions occur,
some markets are primarily for institutional investors rather than retail investors. Examples of markets primarily for
institutional investors include the swaps and forward markets.

► Retail investors typically buy and sell stocks in round lots of 100 shares or more; institutional investors are known to buy
and sell in block trades of 10,000 shares or more. Because of the larger trade volumes and sizes, institutional investors
sometimes avoid buying stocks of smaller companies for two reasons. First, the act of buying or selling large blocks of a
small, thinly traded stock can create sudden supply and demand imbalances that move share prices higher and
lower.

► In addition, institutional investors typically avoid acquiring a high percentage of company ownership because
performing such an act may violate securities laws. For example, mutual funds, closed-end funds, and exchange-
traded funds (ETFs) that are registered as diversified funds are restricted as to the percentage of a company’s voting
securities that the funds can own.
General Consulting Approach
Step 1:
Governance framework
and establish
investment policy
statement

Step 6: Step 2:
Investment objectives
Ongoing monitoring and risk tolerance

Step 5: Step 3:
Asset manager Strategic asset
selection allocation

Step 4:
Portfolio construction
 What is an investment objective?

► An investment objective is a client information form used by registered investment advisors (RIAs), robo-advisors,
and other asset managers that helps to determine the optimal portfolio mix for a client. An investment objective
may also be filled out by an individual managing their own portfolio.

▪ An investment objective is a set of goals an investor has for their portfolio.

▪ The objective helps an investment manager or advisor determine the optimal strategy for achieving the
client's goals.
▪ The investment objective is often determined using a questionnaire.
▪ An investor's risk tolerance and time horizon are two main parts of determining an investment objective.
▪ Robo-advisors can take into consideration investment objectives and build an optimal portfolio for lower
fees than traditional advisors.
 Understanding investment objectives

► An investment objective is usually in the form of a questionnaire, and answers to the questions determine the client’s
aversion to risk (risk tolerance) and how long the money is to be invested for (time horizon). Basically, the information
retrieved from the form filled out by the individual or client sets the goal or objective for the client’s portfolio in terms
of what types of security to include in the portfolio.
► Some of the questions that are included in the form to figure out this objective include:
▪ What's your estimated annual income and net worth ?
▪ What's your average annual expenses ?
▪ What's your goal for investing this money ?
▪ When would you like to withdraw your money ?
▪ Do you want the money to achieve substantial capital growth or are you more interested in maintaining the
principal value ?
▪ What's the maximum decrease in the value of your portfolio that you would be comfortable with?
▪ What's your level of knowledge with investment products such as stocks, fixed income, mutual
funds, derivatives, etc. ?
Understanding investment objectives

► An individual or client would have their portfolio tailored according to the answers provided to these
questions. For example, a client with a high-risk tolerance whose goal is to buy a home in five years and is
interested in capital growth will have a short-term aggressive portfolio set up for them. This aggressive
portfolio would probably have more stocks and derivative instruments allocated in the portfolio than fixed
income and money market securities.

► On the other hand, a 40-year-old high-income earner investing to retire in 20 years and who is only interested
in preserving capital may construct a long term portfolio with low-risk securities heavily comprised of fixed
income, money market, and any investment that would protect capital against inflation.
Investment advice and solutions
Global Assets Worldwide Assets
# Provider Under Advice # Provider Under Mgmt (AUM)
(AUA) (USD bn)1 (USD bn)2

1 Mercer $15,044 1 Mercer $260.5

2 Aon $3,524 2 Aon $172.2

3 Willis Towers Watson $2,600 3 Russell Investments $161.9

4 Callan LLC $2,508 4 Willis Towers Watson $140.1

5 Russell Investments $2,450 5 BlackRock $139.6

State Street Global
6 Cambridge Associates $2,426 6 $137.2
Advisors
7 RVK Inc. $2,380 7 Goldman Sachs $107.0
Meketa Investment Group
8 $1,976 8 SEI Investments $85.5
Inc.
9 Wilshire Associates Inc. $1,170 9 Northern Trust $83.3

10 NEPC, LLC $1,080 10 Alan Biller & Associates $46.8

1 Pension & Investments, AUA ranked by worldwide assets under advisement as of June 30, 2019 as reported by each firm to P&I;
2 Pensions & Investments AUM ranked by worldwide assets under management as of March 31, 2020 for outsourcing managers as reported by each firm.
* Assets under advisement includes aggregated data for Mercer Investment Consulting LLC and its affiliated companies globally (“Mercer”) as of 30 June 2019. Data is derived from a variety of
sources, including, but not limited to, third-party custodians or investment managers, regulatory filings, and client self-reported data. Mercer has not independently verified the data. Where available,
data is provided as of 30 June 2019 (“Reporting Date”). If data was not available as of the Reporting Date, information from a date closest in time to the Reporting Date, which may be of a more
recent date than the Reporting Date, was included. Data includes assets of clients that have engaged Mercer to provide projec t-based services within the 12-month period ending on the Reporting
Date, and assets of clients that subscribe to Mercer’s Manager Research database.
*The assets under management data reported here include aggregate data for Mercer Investment Management, Inc. and its affilia ted fiduciary management businesses globally as of 31 March 2020.
 Types of Institutional Investors

Sovereign Pension Endowment & Insurance Corporate Family Office

Foundation
Description A sovereign wealth fund is a A pension fund, also An endowment fund is Insurance is a Many corporates Family offices
state-owned investment fund known as a an investment fund contract, use the surplus provide a spectrum
comprised of money generated superannuation fund established by a represented by a liquidity of wealth
by the government, often in some countries, foundation that makes policy, in which an generated from management
derived from a country's surplus is any plan, fund, or consistent withdrawals individual or entity core business to services to one or
reserves. SWFs provide a benefit scheme that from invested capital. receives financial invest outside it more than one
for a country's economy and its provides retirement The capital or money in protection or for capital ultra-high-net-worth
citizens. income. Pension endowment funds is reimbursement appreciation or family. Family
funds are pooled often used by against losses from yield offices are also
monetary universities, nonprofit an insurance enhancement. involved in wealth
contributions from organizations, company. The succession, tax
pension plans set up churches, and company pools planning and
by employers, unions, hospitals. Endowment clients’ risks to philanthropy.
or other funds are typically make payments
organizations to funded by donations more affordable
provide for their that are deductible for for the insured.
employees' or the donors and are
members' retirement used for specific
benefits. purposes.
Examples Norway Government Pension The U.S. Social Harvard University AIA, Manulife, BOC CTF, SHK Rockefeller Global
Fund Global, China Investment Security Trust Funds Endowment Family Office
Corporation, Abu Dhabi and the Government
Investment Authority, Kuwait Pension Investment
Investment Authority, Hong Fund Japan
Kong Monetary Authority
Investment Portfolio
 Top 10 Largest Sovereign Wealth Fund
Rankings by Total Assets
Rank Profile Total Assets Region
1. Norway Government Pension Fund Global $1,339,280,000,000 Europe
2. China Investment Corporation $1,222,307,000,000 Asia
3. Kuwait Investment Authority $692,900,000,000 Middle East
4. Abu Dhabi Investment Authority $649,175,654,400 Middle East
5. Hong Kong Monetary Authority Investment Portfolio $585,734,000,000 Asia
6. GIC Private Limited $545,000,000,000 Asia
7. Temasek Holdings $484,441,000,000 Asia
8. Public Investment Fund $480,000,000,000 Middle East
9. National Council for Social Security Fund $447,358,000,000 Asia
10. Qatar Investment Authority $354,000,000,000 Middle East

Source: SWFI: https://www.swfinstitute.org/fund-rankings/sovereign-wealth-fund

Investment consultants market
investigation 2017

► Reference: https://www.gov.uk/cma-cases/investment-consultants-
market-investigation
Institutional
Elements of an Investment
Investment Policy Statement for
institutional investors
Consulting
General Consulting Approach
Step 1:
Governance framework
and establish
investment policy
statement

Step 6: Step 2:
Investment objectives
Ongoing monitoring and risk tolerance

Step 5: Step 3:
Asset manager Strategic asset
selection allocation

Step 4:
Portfolio construction
Investment Policy Statement (IPS)

► Systematic approach to documenting objectives, constraints and

governance mechanisms
► Clarify responsibilities and establishing accountabilities
► Serves as a strategic guide in the planning and implementation of an
investment program which can anticipates issues
► Highly customized – not every element will be appropriate for every
investor or every situation, and additional components reflecting unique
investor circumstances may be desirable.
► Should be reviewed annually, however revisions should be infrequent
1. Scope and Purpose

► Define the investor

► Define who the investor is, be it a natural person or legal/ corporate entity
► Specify which of the investor’s assets are to be governed by the IPS

► Define the structure

► Set forth key responsibilities and actors
► Identify an organizational structure for investing
► Identify a risk management structure applicable to investing
► Assign responsibility for monitoring and reporting
► Document acceptance of the IPS
2. Governance

► Who is responsible for determining investment policy, executing

investment policy and monitoring the results of implementation of the
policy
► Describe the process for reviewing and updating the IPS
► Describe the responsibility for engaging and discharging external advisers
► Describe the roles and responsibilities of boards and staff
► Assign responsibility for determination of asset allocation
► Assign responsibility for risk management, monitoring and reporting
3. Investment, Return, and Risk
Objectives

► Describe the overall investment objective

► State the return and risk requirements
► Define the risk tolerance of the investor
► Describe relevant constraints
► Describe other considerations relevant to investment strategy
4. Risk Management

► Establish performance measurement and reporting accountabilities

► Specify appropriate metrics for risk measurement and evaluation
► Define a process for rebalancing portfolios to target allocations
Case study

► Government Pension Investment Fund (gpif.go.jp)

Institutional
Investment General consulting
approach Step 1 - 4
Consulting
General Consulting Approach
Step 1:
Governance framework
and establish
investment policy
statement

Step 6: Step 2:
Investment objectives
Ongoing monitoring and risk tolerance

Step 5: Step 3:
Asset manager Strategic asset
selection allocation

Step 4:
Portfolio construction
Defining the Time Horizon
Establishing Investment Objectives

 Nature of the source of funds

Factors to  Investment timeframe and potential for dynamic actions Avoid conflicting
Consider objectives
 Stakeholders’ expectations
 Factors that influence risk tolerance

 Have a quantifiable target that is both attainable and measurable over a specified
time period
Quantifiable  A suitable target to be one that can be achieved approximately 66% to 75%
Targets of the time

 Primary objective (such as a specific target return over a specific time)

 Secondary objectives (incorporating specific objectives not covered by primary
Potentially objectives)
Multiple
Objectives  Risk Tolerance (specifying risk parameters in terms of volatility, chance of
negative returns, or failure to achieve some target)
What is Risk?
 Volatility of investment returns?
 Risk that investment return doesn’t meet stakeholder expectations
 This year?
 Over the next 5 years?
 Risk of loss of capital
 This year?
 Over the next 3 years?
 Loss of capital in nominal or real terms?
 Risk of not meeting cashflows
 This year?
 Over the next 3 years?
 Loss of capital in nominal or real terms?

Identifying and prioritising objectives enables a proper definition of risk

Factors influencing choice of asset
classes

Cash-flow profile
Ease of implementation

Governance
considerations
Legal / regulatory
environment
Liquidity requirements
Potential asset classes

Investment beliefs, Role of portfolio segment (if

including available risk applicable)
premia

Active / passive
management
Transparency
requirements
 Asset class assumptions 1

20-Year View 10-Year View

GRR ARR STD GRR ARR STD
Equities Hong Kong Equity 6.7% 8.9% 22.2% 6.6% 8.8% 22.2%
Global Developed Large Cap Equity Unhedged 5.8% 7.2% 17.2% 5.1% 6.5% 17.2%
Global Developed Large Cap Equity Hedged 6.3% 7.7% 17.7% 5.8% 7.3% 17.7%
Emerging Markets Equity Unhedged 7.5% 10.2% 24.8% 7.2% 9.9% 24.8%
Asia ex Japan Equity Unhedged 7.5% 9.9% 23.5% 7.2% 9.6% 23.5%
Global Defensive Equity Unhedged 5.8% 6.5% 12.7% 5.1% 5.9% 12.7%
Global Defensive Equity Hedged 6.3% 6.9% 11.8% 5.8% 6.5% 11.8%
Global Small Cap Equity Unhedged 6.4% 8.8% 23.0% 5.9% 8.2% 23.0%
Global Small Cap Equity Hedged 6.5% 8.6% 21.9% 5.9% 8.1% 21.9%
Private Equities 8.9% 11.0% 21.9% 8.2% 10.3% 21.9%
Asset class assumptions 2

20-Year View 10-Year View

GRR ARR STD GRR ARR STD
Fixed Income US Cash 2.1% 2.1% 0.9% 1.7% 1.7% 0.9%
Hong Kong Cash 1.8% 1.8% 0.8% 1.2% 1.2% 0.8%
Hong Kong Government Bonds 2.5% 2.5% 3.6% 1.4% 1.4% 3.6%
Hong Kong Non-Government Bonds 2.8% 2.9% 3.9% 1.6% 1.7% 3.9%
Developed Markets Sovereign Bonds Unhedged 2.1% 2.4% 7.4% 0.9% 1.2% 7.4%
Developed Markets Sovereign Bonds Hedged 2.0% 2.1% 3.5% 0.9% 0.9% 3.5%
Developed Markets Investment Grade Credit Unhedged 2.9% 3.0% 6.2% 1.8% 2.0% 6.2%
Developed Markets Investment Grade Credit Hedged 2.8% 2.9% 4.1% 1.9% 2.0% 4.1%
Global Aggregate Bonds Unhedged 2.5% 2.6% 6.0% 1.3% 1.5% 6.0%
Global Aggregate Bonds Hedged 2.4% 2.4% 3.0% 1.3% 1.4% 3.0%
Global Inflation-Linked Bonds Unhedged 1.5% 1.7% 6.5% -0.1% 0.1% 6.5%
Global Inflation-Linked Bonds Hedged 1.5% 1.6% 4.2% 0.0% 0.1% 4.2%
Emerging Markets (Hard Currency) Bonds 4.8% 5.0% 7.5% 4.0% 4.3% 7.5%
Emerging Markets (Local Currency) Bonds Unhedged 5.7% 6.1% 9.4% 5.9% 6.3% 9.4%
Emerging Markets (Local Currency) Bonds Hedged 3.9% 3.9% 4.0% 4.0% 4.1% 4.0%
Asia (Hard Currency) Bonds 4.1% 4.3% 5.7% 3.6% 3.8% 5.7%
Asia (Local Currency) Bonds Unhedged 4.5% 4.7% 6.0% 4.4% 4.5% 6.0%
Asia (Local Currency) Bonds Hedged 3.1% 3.1% 2.8% 2.8% 2.8% 2.8%
Global High Yield 3.9% 4.3% 9.5% 2.5% 2.9% 9.5%
Senior/ Leveraged Loans 3.6% 3.9% 8.3% 3.2% 3.6% 8.3%
Absolute Return Bonds 3.5% 3.5% 2.0% 3.0% 3.0% 2.0%
Unconstrained Bonds 3.7% 3.8% 5.1% 3.0% 3.1% 5.1%
US TIPs 2.2% 2.3% 4.8% 1.4% 1.5% 4.8%
Portfolio construction
Risk control – number of managers
 Global equity mandates have generally have higher pairwise correlation between managers.
 Improvement of return per unit of risk driven by manager diversification diminishes with portfolios above 3-5
managers
 Too many managers (assuming a pairwise correlation of 0.5%+) can result in a reversion to the mean.
 Another by product of additional managers is reduced scale and ability to negotiate fee reductions
Combined manager Style skyline

Factor Positioning:
 Positive tilt to Value, Momentum and Quality/Growth. Source: Style Research
 Negative tilt to Market cap and Dividend Yield
Institutional
Investment Common Investment
approaches
Consulting
1. Norway Model

► Popularized by Norway’s global pension fund, Government Pension Fund

Global (GPFG)
► Characterized by an almost exclusive reliance on public equities and
fixed income (the traditional 60/40 equity/bond model falls under the
Norway model
► Largely passively managed assets and with very little to no allocation to
alternative investments
► Low investment costs/ fees, transparent, risk of poor manager selection is
low, little complexity for a governing board
► Limited potential for value-added above market returns
2. Endowment Model

► Popularized by Yale Endowment

► Characterized by a high allocation to alternative investments, significant
active management, and externally managed assets
► Direct contrast to the Norway model
► Not only followed by endowments but many investors
► Appropriate for institutional investors that have a long-term investment
horizon, high risk tolerance, relatively small liquidity needs, and skill in
sourcing alternative investments
► More expensive in terms of costs/ fees
3. Canada Model

► Popularized by the Canada Pension Plan Investment Board (CPPIB)

► Characterized by a high allocation to alternatives
► Relies more on internally managed assets
► Features: Reference portfolio, total portfolio approach and active
management
► Reference portfolio is a passive mix of public equities, fixed income, and cash
that represents a cheap and easily implementable portfolio that is expected
to achieve the long-term expected return consistent with the institution’s
investment objectives and risk appetite
► Total portfolio approach is the method of constructing the portfolio to ensure
that planned risk exposures at the total portfolio level are maintained as
individual investments enter, leave of change in value
4. Liability Driven Investing (LDI) Model

► Gained significant importance, particularly among corporate defined

benefit pension plans in the US
► Primary investment objective is to generate returns sufficient to cover
liabilities
► Focus on maximizing expected surplus return and managing surplus
volatility
► Typically have a significant exposure to long duration fixed-income
securities
► Some investors separate their portfolios into a hedging portfolio and a
return-generating portfolio
Institutional
Investment Case studies

Consulting
1. Comparing DB and DC

► Geoff Albright is 35 years old, working at Henley Consulting in Melbourne

Australia, for 10 years
► Participating in DB plan and fully vested
► Henley Consulting offers a DB plan with benefit formula for monthly payments
upon retirement is:
► final monthly salary x benefit percentage (=1.5%) x number of years of service,
where final monthly salary equals his average monthly earnings for the last 3
financial years immediately prior to retirement date
► Geoff is considering a job offer at rival Horizon Ventures Consulting which is
offering a similar salary but offers a DC plan which pay 15% of annual salary
into the plan each year. Employees can choose to invest in one of the 3
diversified portfolios offered by the plan sponsor – Growth, Balanced and
Conservative
2. Harvard Endowment
Background

► Harvard’s endowment, the University’s largest financial asset, is a

perpetual source of support for the University and its mission of teaching
and research
► Made up of more than 14,000 individual funds
► Returns have enabled leading financial aid programs, groundbreaking
discoveries in scientific research, and hundreds of professorships across a
wide range of academic fields
Harvard Endowment
Distributions

► Each year, a portion of the endowment is paid out as an annual

distribution to support the University’s budget
► Any appreciation in excess of annual distribution is retained in the
endowment so that it can grow and support future generations
► Distributed US$2 billion in the fiscal year ending June 30, 2021, contributing
over a third of Harvard’s total operating revenue in that year
► Majority of the funds are restricted to specific programs, departments, or
purposes
► Unrestricted funds are more flexible
Harvard Endowment
Fiscal Year 2021 Sources of Operating
Revenue
Harvard Endowment
Management

► Managed by Harvard Management Company (HMC) – a nonprofit,

whole owned subsidiary of Harvard University – managed since 1974
► Mission: Produce strong investment results to support the educational
and research goals of the University
► Governed by a board of directors appointed by the President and
Fellows of Harvard College
► Manage the endowment in a sustainable way so that it can provide
capital to support the long-term goals of the University
Harvard Endowment
Determine endowment payout

► Spending practice: fund the operating budget with stable and

predictable distribution vs. obligation to maintain the long-term value of
endowment assets after accounting for inflation
► Targets annual endowment payout rate of 5.0% to 5.5% of market value
► Actual payout rate fluctuated between 4.2% to 6.1%
► Dollar amount of the distribution for the next fiscal year is determined well
in advance of the start of the fiscal year and prior to knowing the market
value at the end of it
Investment allocations