Statement of Investment Beliefs

The Purpose of a University Endowment & The Fair Harvard Fund

  • The primary purposes of a university endowment are to fund long-term operations and to provide financial security during difficult times.
  • Investing for the long-term, endowments have special opportunities not available to investors tied to a shorter time horizon. For instance, endowments need not allow short- and medium-term returns to outweigh long-term performance.
  • Investing for the future means investing in activities that reinforce the foundations of economic health, such as a stable environment and productive workers. Investments that directly benefit the real economy promote economic health more than speculative or excessively complex financial instruments.
  • Because environmental, social, and corporate governance aspects of businesses’ practices offer clues about long-term returns and aid in minimizing risk, university endowments have an interest in taking these considerations into account when making long-term investment decisions.
  • Preparation for times of hardship requires that university endowments hold enough capital in liquid assets to fund operations. This purpose also requires that university endowments not invest in securities and alternative investments, such as options, derivatives, and private equity ventures, for which the operating budget might need to be offered up as collateral.

The Role of a University Endowment & The Fair Harvard Fund

  • Aside from the primary purposes stated above, university endowments fill various roles in society. Endowments set an example, to students as well as to community members, of what means are justified in the pursuit of the ends of educational institutions. Harvard University in particular sets an example for the larger university community of what functioning as a not-for-profit, public service institution means.
  • The investment decisions of institutional investors influence the health and nature of markets and the economy. Institutional investors can influence social and environmental outcomes through investment decisions and shareholder engagement. When investors have significant ownership shares in privately-traded investments such as natural resources or real estate, there are often substantial opportunities for sustainable management.
  • We believe that a university has an ethical responsibility to invest in companies that are consistent with its role and values, and to avoid entities with practices that are antithetical to its role and values. Harvard’s priorities include reducing greenhouse gas emissions, promoting cross-cultural understanding, respecting worker’s rights, solving public-health challenges, and supporting intellectual freedom.
  • Transparency supports adherence to institutional policies and allows for increased stakeholder awareness of university activities. When institutional investors consider environmental, social and governance criteria, transparency about these processes increases their effect on social and environmental outcomes.
  • As a social choice fund, the Fair Harvard Fund will particularly emphasize profitable investments with positive social and environmental impacts aligned with the priorities and values of the university.

Market Beliefs

  • Efficiency of asset pricing varies widely between markets depending on a number of factors including size and liquidity. However, the relative pricing of asset classes is not typically efficient and individual markets are not typically efficient in pricing securities.
  • Because relative pricing of asset classes need not be efficient, asset allocation in portfolios should shift to respond to changing market conditions.
  • Diversification decreases the risk in a portfolio, but does not eliminate the risks contributed by individual securities or exposure to market-wide risks affecting several asset classes.
  • Risk is not necessarily rewarded at the level of individual securities. Therefore, prudent managers will decrease risk by evaluating individual securities according to criteria including environmental, social and corporate governance factors.

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