Instead of relying on a mean-variance optimizer with constraints, a portfolio manager for Harvard Management Company...

Transcribed Image Text:

Instead of relying on a mean-variance optimizer with constraints, a portfolio manager for Harvard Management Company could turn to generative AI to help design an appropriate portfolio that balances earning a competitive return with Harvard's cash flow and risk management needs. Enter the following three prompts into a generative AI engine, such as ChatGPT or Bard: Prompt 1: "Imagine you are a portfolio manager for a university endowment. In one paragraph, explain how would you incorporate the university's time-varying cash flow needs and risk management constraints when allocating its optimal portfolio? Make sure that the portfolio is not too conservative that it generates low returns compared to peer institutions but also not too aggressive as to have a highly illiquid portfolio. Describe in detail how would you implement this strategy." Prompt 2: "As a portfolio manager handling a university endowment, in one paragraph detail your approach to balancing the institution's fluctuating cash flow requirements and risk management limitations in constructing its ideal portfolio. Discuss how you would ensure the portfolio is sufficiently growth-oriented to avoid underperforming compared to similar institutions, while also avoiding excessive risk that could lead to a largely illiquid portfolio. Elaborate on the specific methods you would use to execute this strategy." Prompt 3: "If you were managing a university endowment's portfolio, in one paragraph outline your strategy for accommodating the university's changing cash flow needs and risk management boundaries in the portfolio's allocation. Your explanation should focus on striking a balance: the portfolio should not be so cautious as to yield lower returns than those of comparable institutions, nor should it be so bold as to result in significant illiquidity. Describe the steps you would take to implement such a balanced investment strategy." Notice that all three prompts have the same objectives and goals for portfolio management. Paste the three responses you receive into your report. Describe the similarities and differences in the three outlined approaches to portfolio management. Do the different prompts emphasize different aspects of managing a university endowment, and how do they align with the key lessons from the Harvard Management Case? What does this exercise teach you about the sensitivity of the output from generative AI engines to the wording of the prompt? Instead of relying on a mean-variance optimizer with constraints, a portfolio manager for Harvard Management Company could turn to generative AI to help design an appropriate portfolio that balances earning a competitive return with Harvard's cash flow and risk management needs. Enter the following three prompts into a generative AI engine, such as ChatGPT or Bard: Prompt 1: "Imagine you are a portfolio manager for a university endowment. In one paragraph, explain how would you incorporate the university's time-varying cash flow needs and risk management constraints when allocating its optimal portfolio? Make sure that the portfolio is not too conservative that it generates low returns compared to peer institutions but also not too aggressive as to have a highly illiquid portfolio. Describe in detail how would you implement this strategy." Prompt 2: "As a portfolio manager handling a university endowment, in one paragraph detail your approach to balancing the institution's fluctuating cash flow requirements and risk management limitations in constructing its ideal portfolio. Discuss how you would ensure the portfolio is sufficiently growth-oriented to avoid underperforming compared to similar institutions, while also avoiding excessive risk that could lead to a largely illiquid portfolio. Elaborate on the specific methods you would use to execute this strategy." Prompt 3: "If you were managing a university endowment's portfolio, in one paragraph outline your strategy for accommodating the university's changing cash flow needs and risk management boundaries in the portfolio's allocation. Your explanation should focus on striking a balance: the portfolio should not be so cautious as to yield lower returns than those of comparable institutions, nor should it be so bold as to result in significant illiquidity. Describe the steps you would take to implement such a balanced investment strategy." Notice that all three prompts have the same objectives and goals for portfolio management. Paste the three responses you receive into your report. Describe the similarities and differences in the three outlined approaches to portfolio management. Do the different prompts emphasize different aspects of managing a university endowment, and how do they align with the key lessons from the Harvard Management Case? What does this exercise teach you about the sensitivity of the output from generative AI engines to the wording of the prompt?

Answer rating: 100% (QA)

Response 1 As a portfolio manager for a university endowment I would incorporate the institutions timevarying cash flow needs and risk management constraints by implementing a dynamic asset allocation ... View the full answer