Flexing Harvard's Endowment

Almost invariably, Harvard’s endowment has expanded annually for the last two decades. In recent memory, Harvard’s treasure chest has made billions under the care of high-paid financial advisors; during this last fiscal year, the University’s money managers pushed the endowment past the $20 billion mark after increasing it a whopping 21 percent. When Harvard does this well, this consistently, one has to wonder why that doesn’t always translate into tangible benefits for Harvard students and Faculty, who have laundry lists of complaints waiting to be addressed.

Growing the endowment simply for the sake of having more money is not a sound policy; the University’s mission is to educate, not to amass wealth. Yet reckless spending does not make sense, either. Rather, the University must refocus its energy on offering schools consistent increases in endowment payouts from year to year, recession or boom.

Even as the endowment continued to increase last school year, the Faculty of Arts and Sciences (FAS) faced down the possibility of years of deficit spending because of a stagnant endowment payout. Then, in a seeming reversal, the Harvard Corporation relented and increased the FAS endowment payout first by 2 percent, then later by 4 percent. This year, the University is again warning that it might have to forgo any increase in endowment payouts, though this seems particularly extreme considering what a wildly successful year Harvard’s investments had.

Critics of University endowment policy are told that Harvard’s financial planners keep the goal of consistent payouts foremost in their minds when devising the University’s payout scheme. The University is also saving for large, looming expenditures—massive expansion across the Charles River and the high cost of the once-in-a-generation Harvard College Curricular Review now underway. The former will require a brand-new campus in Allston, the latter a much expanded Faculty. So consistently large payouts now are tougher than the size of the endowment might suggest.

Yet even with expensive projects on the horizon, Harvard can do a better job of offering its schools predictable, though not necessarily huge, increases in endowment payouts, as the Corporation’s two unexpected increases in FAS endowment payouts last year indicate. It is critical that the University place renewed emphasis on smoothing out payments over time so that FAS does not be left wondering whether the Corporation will increase its payout at the last minute. Harvard’s various schools should never have to guess whether there will be an increase in their funding or whether the payout will remain stagnant. This is not to say that the University should spend money with reckless abandon; Harvard’s cautious approach has yielded impressive results in terms of sheer wealth generation. It seems reasonable, though, that with an endowment as massive, successful and well-managed as Harvard’s, the University should be able to offer consistent and measured increases in payouts every year.

But regardless of how the University chooses to spend its gains this year, Harvard’s in-house management team deserves thanks for outperforming the median university return by over seventeen percent. No increase in endowment payouts would be possible without their expert management.