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Interview with the CIO of the Nation’s only MBA Student-run Endowment-HARBUS Foundation

Did you know that the Harbus Foundation is the only MBA student-run foundation in the U.S.? The Harbus Foundation provides grants and consulting advice to non-profit organizations in the greater Boston area that focus on education, literacy or journalism. The Foundation was founded by a group of HBS students in 1997 and since then has prided itself on providing close to $70,000 in grants annually. This year, there are more than 45 Harvard Business School students working on behalf of the Foundation on grant-making teams, venture philanthropy teams and Foundation oversight. Like any Foundation, there is a Chief Investment Officer or CIO – the gatekeeper of the Foundation who manages and monitors the Foundation’s investment portfolio. The CIO of the Harbus Foundation is Abigail Wattley. Her responsibilities include managing the investment portfolio, investing surplus funds, managing monies, maintaining liaison with the three elected Harbus Trustees and counseling with financial analysts. Below I pick her brain to learn more about what the Harbus Foundation is invested in.

MIA: There seems to be lots of confusion. How exactly does the Harbus Foundation differ from The Harbus News Corporation, i.e., the newspaper?
ABIGAIL: The Harbus Foundation was started by students who were working for The Harbus News Corporation. They saw that the Harbus News Corporation had amassed a large amount of surplus cash primarily from advertising revenues. They wanted to do something good for the community with the excess cash so they established the Harbus Foundation. Today the Harbus Foundation operates mostly independently from The Harbus News Corporation, although The Harbus News Corporation has continued to provide generous funding for the Foundation, and there is some student overlap on the Board.

MIA: How did you get involved in foundation investing to begin with?
ABIGAIL: Out of college, I spent two years working for an investment consulting firm here in Boston called Cambridge Associates.ÿ The firm works with a number of large endowed non-profits (colleges/universities, museums, libraries, arts organizations and hospitals), as well as private clients. The firm helps them think about their investment portfolio – specifically asset allocation and manager selection.ÿ From there, I spent a year working in the investment office for Williams College, helping to oversee the investments in the endowment.ÿ

MIA: You are the CIO. What are your responsibilities?
ABIGAIL: My role is to act as the Chief Investment Officer for the Foundation’s endowment. The endowment is currently more than $1.1 million in assets, and as the CIO my job is to ensure that these assets are invested in a prudent and productive way.

I have always been interested in endowments and how they are invested because I believe good stewardship of financial assets is what ultimately allows organizations to achieve greater impact – whether it is Harvard giving more financial aid, or the Harbus Foundation making more grants – it all depends on the specific endowment and how stable it is.

MIA: What are the Harbus Foundation’s short- and long-term financial goals?
ABIGAIL: We are trying to maintain the “purchasing power” of the endowment so that future generations of students will have the opportunity to work on behalf of the Foundation and make meaningful grants. To the extent we can, we are also trying to grow the endowment so that the Foundation can ultimately have a greater impact on the organizations it serves. For the past few years, the Foundation has given out $70,000 worth of grants annually, so we are hoping to make at least as much as we spend, plus inflation so we can maintain the “real” value of the assets.

MIA: What investments is the Harbus Foundation invested in?
ABIGAIL: Our strategy is to have a fully diversified portfolio, a la the “endowment model” of investing, with as low a cost structure as possible. We avoid any single stock holdings. The endowment is invested across six different asset classes (U.S. Equity, Non-U.S. Equity, Emerging Markets Equity, Inflation Hedging, Fixed Income and Cash) with a balance of 75% equity and 25% fixed income.

Given the size of the endowment, we don’t have access to alternative investments like hedge funds and private equity, but we try to source the best publically available mutual funds. We do have a lot of exposure to index funds and exchange traded funds (ETFs) because they are so cost effective and because it can be hard to do really good due diligence on active investment managers when you are our size. Moreover, in efficient markets, like large-cap U.S. equity for example, it can be hard to find active managers that consistently outperform the market and justify their higher fees.

MIA: How have your allocation strategies changed in the past year? How have they changed in the past 5 years?
ABIGAIL: The biggest change in the past year is increasing allocation to “Inflation Hedging” or “Real Assets.” Our strategy in this asset class is to create a basket of securities with various inflation-hedging characteristics so that if we hit a period of higher inflation, these assets will hopefully perform well and help the endowment maintain its value. Securities that are included in this allocation are Treasury-Inflation Protected Securities (TIPS), Real Estate and Commodities. Some investors are concerned that there will be a significant period of inflation ahead because of the large stimulus packages. There hasn’t been much evidence of inflation in the economy yet, but we’re prepared if it comes!

Over the past five years, the biggest change is probably the inclusion of emerging market equity. This is still a small portion of the portfolio (around 5%) because of the higher risk associated with investing in emerging markets, but over the last five years the returns for the broad emerging markets are in the mid-teens, which is very attractive performance.

MIA: What products, financial instruments and markets are interesting to you personally?
ABIGAIL: Mia – I am a broke business school student – does a Bank of America savings account count?

I think for personal investments the same disciplined investing approach that an endowment uses generally applies. Diversification seems to be an easy win unless you have a unique edge on investment managers or opportunities (I would argue that as a full time student I’d be hard pressed to find enough time to develop a really unique edge). Overall, getting the asset allocation right is more important than selecting investment managers.

I’m always interested in learning about new investment opportunities, products and instruments, but for me the biggest lesson I’ve taken away from the recent economic crisis is to understand what you are investing in. Of course, that is easier said than done, but just because everyone else is doing something doesn’t mean you should, too.

MIA: How do you ensure contingency planning for when you graduate?
ABIGAIL: I am lucky to have a great, hard-working team of four RC students working on the portfolio – Charles Davis, Marley Kornreich, Yixiao Liu and Howard Soh.ÿ Each has responsibility for an asset class in the portfolio.ÿ We are spending the first semester getting to know the investments in the portfolio and next semester we are going to review the portfolio’s asset allocation and figure out if we want to make any changes to allocation or managers.ÿ The plan is to transition oversight of the portfolio to one of these RCs so that there is some consistency in the team from each year.

Clearly, Abigail has great responsibility in overseeing the Harbus Foundation’s endowment. Her passion, portfolio scrutiny and dedication to growing the fund have helped the Foundation reach $1.15 million at time of print.

Your HBS Money Honey,
Mia Saini

AUTHOR’S BIOGRAPHY
Mia Saini is a born and raised California girl. She is earning her MBA at HBS. She graduated from MIT and went straight to the sales floor at Goldman Sachs. She honed her journalism skills at CNN, WB, CNBC, and as a TV reporter at Jim Cramer’s www.TheStreet.com. She is the founder of HBS TV and is a video host for MBA PodTV on www.mbapodcaster.com. Each week she writes a “Money with Mia” column about money, business, and personal finance, so email HBS’s Money Honey your questions, story ideas, and feedback.

December 7, 2009
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