The Harvard Management Company and Inflation-Protected Bonds
HBS Case No.: 201-053; Teaching Note No.: 202-109
Posted: 22 Aug 2002
SUBJECT AREAS: Financial Instruments, Investments, Inflation Index Bonds, Investment Management, Portfolio Management
CASE SETTING: Boston, MA; perspective - local; focus - global; year 2000
In March 2000, the Board of the Harvard Management Company (HMC) approved significant changes in the policy portfolio determining the long-run allocation policy of the Harvard University endowment. These changes included a sharp reduction of the allocation of U.S. equities and U.S. nominal bonds and a significant investment in the new U.S. Treasury Inflation-Protected Securities (TIPS). The case focuses on the analysis that lead HMC management to recommend such changes to the Board.
Teaching Purpose: To provide students with ample opportunities to discuss historical versus forward-looking means, variances and covariances, portfolio theory, mean-variance portfolio analysis, the Capital Asset Pricing Model, nominal and inflation-indexed bonds, the role of long-term bonds in the portfolio of long-horizon investors, and the organization of investment companies (benchmarking, compensation, external versus internal management, etc.)
Suggested Citation: Suggested Citation