Investment case study
Introduction:
This case examines the asset allocation decisions that the Hewlett Foundation (HF) is
considering in early 2005. After careful analysis of the financial challenges and investment
opportunities the foundation is currently facing, the foundations investment committee must
decide on three asset allocation proposals which, if approved, will substantially change the
foundations investment portfolio.
This case presents opportunities to discuss the design of asset allocation policies for longterm
investors, the design and implementation of return overlay (or alpha transport) strategies,
evaluation of performance and risk exposures of hedge fund strategies, portfolio diversification,
and investments in non-liquid assets.
Questions:
Please write no more than a paragraph for each question. Bullet points or a chart is fine too.
1. What are the Hewlett Foundations (HF) objectives as a foundation? What are the financial
issues facing HF?
2. Is HFs newly proposed asset allocation policy adequate to meet the foundations 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?
3. Is HFs donor stock sale program a good idea?
