Posted on September 17, 2004

Investments Boost Harvard Endowment to $22.6 Billion

The endowment of Harvard University, by far the largest university endowment in the country, earned a 21.1 percent return in the fiscal year ending June 30, 2004, raising its overall value from $19.3 billion to $22.6 billion, the Harvard Management Company (HMC) reports.

Calling Harvard's results "extraordinary," HMC president Jack Meyer said preliminary numbers for the twenty-five largest university endowments showed that half had earned returns of at least 17.1 percent in fiscal 2004. According to figures gathered by the New York Times, the University of Pennsylvania earned 16.8 percent in the twelve months ending in June, raising the value of its endowment to $4 billion; the Massachusetts Institute of Technology earned 18.1 percent, pushing the value of its endowment to $6 billion; and Stanford earned 18 percent, as its endowment grew to $10 billion.

Year-to-year endowment growth is a function of several factors, including investment returns, new contributions, and annual payout for university programs (typically about 5 percent of the total). Last year, endowment dollars provided almost a third of Harvard's operating budget, or over $800 million. Ronald G. Ehrenberg, a Cornell economist who studies higher education, told the Times that "many institutions, including my own, still have not seen their endowments grow back to where they were at the peak of the market four years ago." Ehrenberg said he expected the exceptional returns at universities with the largest endowments to further widen the gap between those and other institutions.

The Times also points out that Harvard's exceptional results may not quiet critics who say it pays its money managers too much. Last year, the university reported that two of them had earned about $35 million each in the previous fiscal year and that Meyer had earned $6.9 million. The disclosure led some Harvard alumni to say they would withhold additional contributions to the school if the compensation structure at HMC is not changed. University officials have said they will study the issue.

At other top universities, money managers rarely earn as much as $1 million, but some of those managers noted that Harvard was unusual in terms of the degree to which it directly invests its own assets. Meyer agrees. "I'm confident that it is a good deal for Harvard," he told the Times. "The problem could easily be solved by spinning out all of our internal fund managers. But if that happened, our fees would go up, our investment results would go down."