How the University Invests Its Billion

It takes a big chunk of money to run the colossus that is Harvard University--$135 million last year. The Federal government chips in about a third of the total, but the University must provide the rest from year-to-year alumni gifts, foundation grants, student tuition, and the yearly income from the famed and mysterious billion dollar endowment.

The endowment includes long-term donations for scholarships, professorships, and building--both in the graduate schools and the College. More than anything else it tells the story of Harvard's financial condition from year to year. If the usual five percent return ever dropped to four per cent, tuition might have to be doubled to meet costs. And conversely an improvement of as little as 1/10 of a per cent brings an extra million dollars into the University's coffers.

From his office 29 floors above Boston Harbor in the State Street Bank Building, George F. Bennett '33, Treasurer of the Corporation, watches over Harvard's billion. Aided by the 50-man staff of his State Street Investment Co. -- which Harvard retains--Bennett invests the endowment in all the usual areas: common stocks, bonds, and real estate.

Bennett's actions are reviewed weekly by the six other members of the Corporation -- President Pusey and five fellows. "I make the decisions, tell them the reasons why and they can approve or disapprove," Bennett explained recently. His suggestions are rarely, if ever, rejected, but his investment policy has encountered sporadic opposition in other areas of the University.

Best Return

Harvard is out to make money from its investments, Bennett said. "We don't try to accomplish social purposes with our capital; we just try to put it where it will bring us the best return."

This pragmatic policy has evoked the criticism--most recently in May 1964, when the University's large holdings in a southern power company--Middle South Utilities--came under fire from a group of Harvard and Radcliffe students who had spent the previous summer in civil rights work.

In a letter to President Pusey, the students alleged that the University could and should supervise Middle South more closely--particularly one of its subsidiaries, Mississippi and Light. Harvard is the company's largest common stockholder--its holdings ($10 million then and $13.6 million now) represent 1.7 per cent of Middle South. The students argued that the University power in the company was even greater than those figures indicated -- because former Treasurer Paul C. Cabot '21 and Thomas D. Cabot '44, former member of the Board of Overseers, also owned huge blocks of Middle South stock.

According to the letter, Mississippi Power and Light engaged in "racist hiring practices" and had an "affiliation with segregationist legislators." A covering letter from the Student Non-Violent Coordinating Committee later that May traced a complicated set of inter-relationships that they said formed the Mississippi "power base" -- Mississippi Power, the anti-integration White Citizens' Council and the state Democratic Party. SNCC claimed that these three organizations were the dominant political and social forces in the state.

If Harvard exercised its interest in the power company, said SNCC and the students, the University could speed the drive to state-wide integration. "Mississippi is a profitable business enterprise," they challenged; "we wonder whether education is only incidental to the Board of Trustees. "In effect the issue was whether a corporation could separate itself from its product--in the University's case a liberally-educated man.

There was a brief flurry of excitement in Cambridge--SDS got into the act and is still quietly campaigning against many of the University's financial policies. But the furor died away when President Pusey, in a return letter to the students, asserted the dichoomy between Harvard's intellectual and financial sides. Bennett--who maintains that SNCC "didn't have all the facts straight" three years ago--has maintained this policy since he took over as Treasurer from Cabot '21 in 1965. A director of Middle South Utilities, he runs the Harvard endowment in much the same fashion as he runs the several mutual funds and other investment organizations which his office handles--for profit, not for social gain. Bennett doesn't sharply define a moral or legal standard he uses for investing Harvard's billion. "We wouldn't want to make money on a company involved in unethical practices," he says.

Perhaps the word "unethical" is the backbone of the problem. In an interview a few weeks ago, John U. Monro '34, Dean of the College, discussed the philosophical ramifications of a corporation's investments. He saw possible moral objections to much of Harvard's common stock portfolio.

"But," Monro said, "if you start limiting your investments with social welfare in mind, there aren't going to be that many companies available which are free from social criticism."

Where to Stop?

For instance, he strongly questioned Harvard's million dollar holdings in R. J. Reynolds Tobacco Co. Should the University realize a profit from cigarette companies engaged in "as cynical a game as there is in the world--hooking youths and keeping them hooked?" he asked. In addition Monro pointed out that to those who consider the Vietnam war unjust, the various Harvard investments in companies supplying and "getting rich" on the war could be considered unethical. In this category he lumped University holdings in I.B.M. ($30,715,717, as of June, 1966), Texaco ($26,413,567), General Electric ($9,468,048) and Lockheed Aircraft ($689,152). "Where do you stop?" Monro asked.

Critics of the University's investment philosophy have grown relatively quiet and Bennett--like his predecessor Cabot--has been an extremely successful Treasurer. Taking his role as trustee of Harvard's 300-year-old endowment seriously--"I've got to produce or they'll get a new Treasurer"--he has helped spiral the fund to four times what it was just 20 years ago. Much of the increase was caused by a rising stock market that most sharply raises the value of the 60 per cent of the billion now invested in common stock.

The steadily-enlarging stock portfolio reflects one of the major changes in American investment over the past 40 years, Bennett says. In the 1920's stocks were not considered "suitable" for conservative endowment funds. In the late '30's as confidence and stability returned to the market, more and more conservative investors began to foresake the low (two and one half to three per cent) return rates on safe bonds for the higher income and better big money opportunities of stocks. As stocks became fashionable, Harvard's bundle climbed swiftly from trace holdings before the 1929 Crash to 35 per cent of the total endowment by 1948.

The University will continue to buy more common stock, Bennett said, until it reaches that "practical limitation--the point beyond which you wouldn't want all your money" in the always slightly risky world of the market. Daily, or even yearly, shifts in the market don't really concern Harvard, he said, because an investment fund is set up so as not to succeed or fail on the strength of day to day market fluctuations -- Harvard, says Bennett, doesn't bother with "interim moves.'

Whenever a new project stalls for lack of funds, a cry arises to the effect of "well, if we're worth a billion dollars and we have the largest endowment of any private university in the country, why can't we spare a few puny millions to build..." a new indoor athletic building, for instance. That billion is capital, Bennett stresses, "and once we start cutting into that, we're going to get busted." All the University can spend from its riches for the fiscal year 1967 is the $30-$40 million it will realize in income.

And a good deal of that income has strings attached. According to Bennett, "too much of the endowment is restricted," whether to supporting specific scholarships, filling certain professorial chairs or financing one or another of the graduate schools. Moreover, there is $30 million of special investments, which cannot even be invested with the rest of the endowment. They must be sunk into specific areas--one block, for example, must be invested in the steadily declining world of railroad bonds. The unrestricted alumni contributions that come in each year are thus essential to the University's financial well being.

Bennett is an investor; he doesn't see the Harvard fund as different from the John Hancock Mutual Fund in terms of how it should be handled. His job is "to invest and reinvest the billion to provide the largest possible income." If his investments go the least bit sour, the pinch may be felt from Wigglesworth to Mallinckrodt. There's a hot line on George Bennett's desk--it goes directly to Cambridge. But some critics, with memories of the Middle South controversy, think a wall of dollars has sprung up somewhere in between