The world of investments is carved into many sub-sets of investors. These include retail investors such as you and me (!) and institutional investors including insurance companies, banks, and endowments. Regardless of the investor type, it is important that the investor know all of their critical investment policy parameters such as risk tolerance, time horizon, liquidity needs, tax status and unique considerations. The recent market dislocation has reminded us of this!
College endowments are used by colleges to support their current and future financial needs. Consequently, a balanced mix of public and private investments generating a mix of cash flow for current needs and growth for future needs is a baseline approach. However, when an external event occurs, the policy may need to be updated!
As reported in the Harvard Crimson, the Harvard University endowment is planning to liquidate nearly $1 billion (or 5%) of its illiquid private equity this year amidst turbulence in potential government funding cuts that could impact the university’s operations. Previously, the endowment had held 39% of its asset mix in this illiquid asset class.
Though the University is not publicly stating that its planned sale is directly in response to the need for liquidity due to potential government funding cuts, this action highlights the need for an investment policy statement to be fluid, adaptable and updated when situations warrant it.
D&A is in complete agreement with the need to keep investment strategies current and in line with client needs and D&A targets that the strategies be reviewed on at least an annual basis. Moreover, if there is a major life event happening to you in the meantime, please be sure to give me a call so we can ensure that your investment strategy continues to be consistent with your needs.