Investing Your Own Endowment Fund Like Harvard Invests

Abstract

This paper describes the investment strategy pursed by Harvard in managing their endowment fund. The Harvard Endowment Fund pursues extreme diversification in the asset class mix in their investment portfolio. The endowment portfolio deemphasizes US equities and fixed income and substitutes these asset classes with investments in real estate, commodities, private equity, emerging market equities, and developed foreign equities. The returns from the Harvard Endowment Fund have exceeded benchmark indexes substantially over the last 25 years. This paper illustrates creating your own endowment fund using exchange traded funds and index mutual funds representing various asset classes. The paper shows which funds can be used as a proxy for the underlying asset class. A simulated model portfolio invested in exchange traded funds is created and the historical returns from that portfolio are computed and compared against the returns from the Harvard Endowment Fund and the S&P 500 Index for the same period.