The paper “ The Performance of Harvard Management Company” is a forceful example of an assignment on management. The long-term objective for investments of Harvard Management Company can include the real value of the endowment and achieve income distribution in the perpetuity. In the past, the expenses at Harvard have continued increasing where the university could spend the highest endowment of around 6% annually. Also, achieving an increase in the annual returns is part of the long-term objectives of Harvard Management Company. In the process of achieving the long-term objectives, the company has put in place the necessary strategies for managing risks.
Considering the risks that are associated with the future returns the annual spending rate has been set at 5%. The risks have been predicted based on the fluctuations that have been taking place in the financial market returns and an inflation rate that can lead to an increase in the spending rate. Harvard Management Company expects returns of around 5.5% while the expenses have continued growing. The company can accommodate risks of around 5% associated with the uncertainties like the future real returns.
Besides, the expected changes in the market returns are among the risks that the company is ready to take. The factors that can be used in the process of determining the long-term return and risk objectives include controlling the spending rate. The rate of expenditure is targeted to remain at 3% to 6% where the annual returns are said to have significant effects on the total spending. Initially, the company was experiencing the lowest rate of expenditure of around 3% and the highest rate of around 29%. Besides, the ability to meet the budget has been used in the process of determining the long-term returns and risk objectives. 2.
The Harvard management company has been performing well over the past years. It has been experiencing improvement in performance as the percentage of spending has been declining. The drop in spending can be attributed to the financial markets that rose drastically. The expenses have been increasing because of the increasing faculty salaries, renovation costs, financial aid to the students, and the need for restraining the tuition increases. New investments have been made in the process of realizing expansion that has led to an improvement in the returns realized.
ReferencesBond, S. A., Hwang, S., Mitchell, P., & Satchell, S. E. (2007). Will private equity and hedge funds replace real estate in mixed-asset portfolios?. The Journal of Portfolio Management, 33(5), 74-84.