University Expects Endowment Payout to Rise 4%

The University has advised its schools to plan for a 4 percent rise in the value of the endowment payout for the next fiscal year, marking the first yearly increase since the beginning of the financial crisis in 2008.

The figure—confirmed by University spokesman John D. Longbrake yesterday—represents the percentage of the endowment that will likely be available for University schools to spend during the next fiscal year, which begins July 1.

The news comes less than two weeks after the University announced that the endowment had grown to $27.4 billion in the year ending June 2010, reflecting an annual investment return of 11 percent.

The Harvard Corporation, the University’s highest governing body, adjusts the payout rate based on endowment performance and strives to keep a consistent amount of money available for budgeting. During the years before the financial crisis, the University aimed to spend between 5 and 5.5 percent of the total endowment value.

In an interview last Friday, School of Engineering and Applied Sciences Dean Cherry A. Murray said that she had recently been informed of the change in the payout rate.

According to Murray, universities often adjust their payout rates after looking at endowment performance over the past three years, rather than just the past year. Given the financial downturn over the three years, Murray said that the rise in endowment payout represented "good news."

"If you do a rolling average of the past three years, we would not be at plus 4 percent," she said.

The payout fell 12 percent last year and 8 percent the year before, reflecting the precipitous 30 percent drop in the value of Harvard’s endowment between June 2008 and June 2009.

The endowment payout will have varying effects on school budgets. For SEAS, which derives 40 percent of its budget from the endowment, the increased payout will loosen pressure on the school’s financial reserves, which it has been spending since the beginning of the financial crisis.

For the Faculty of Arts and Sciences, which derives about half of its budget from the endowment, the increased revenue could provide financial relief. The school is seeking to close a deficit that stands at $35 million, according to spring predictions from FAS Dean Michael D. Smith.

Other Harvard schools may be even more directly affected. The Radcliffe Institute for Advanced Study, the unit most dependent on the endowment, derived 87 percent of its revenue from endowment funds in the year that ended in 2009.

Schools will provide their final budgets for the coming academic year by the beginning of next summer.

A number of departmental administrators said that they were not yet aware of a potential increase in the endowment payout rate.

"I don’t know the implication of [the payout rise] for my budget,” said Psychology Department Chair Susan E. Carey '64. "[The number] certainly hasn’t been officially told to me in the context of my budget planning, but I’m not engaged in that process yet."

Linda Wang, the assistant director for departmental finance in the Department of Molecular and Cellular Biology, said that she had not yet been informed of the rise in the payout rate.

Wang added that while department administrators were anticipating that the payout rate would rise, the 4 percent number “would be on the optimistic side” of their expectations.

—Staff writer Noah S. Rayman can be reached at nrayman@fas.harvard.edu.

—Staff writer Evan T.R. Rosenman can be reached at erosenm@fas.harvard.edu.

—Elias J. Groll contributed to the reporting of this story.