Harvard University’s endowment earned a 21.1 percent return during the year ending June 30, 2004, bringing the endowment’s overall value to $22.6 billion.

The continued strong returns buttress the endowment’s critical support for Harvard’s academic programs. In the 2004 fiscal year, endowment dollars provided almost a third of Harvard’s operating budget, or over $800 million.

The endowment pays for specific activities donors have endowed over time, including financial aid, faculty salaries, and facilities maintenance. For example, endowment income supports Harvard’s student financial aid programs, which permit the University to admit qualified students regardless of their ability to pay. From fiscal 1998 to fiscal 2003, grants and loans to students from the University rose 77 percent to $174.9 million from $98.5 million.

Endowment dollars used for overall Harvard programs almost doubled during the same period, rising 95 percent to $771 million from $394 million.

Harvard Management Company (HMC) President Jack Meyer called the last two years’ results “extraordinary” and said they reflect the value that HMC’s managers bring to the University’s investments.

“Value-added has been significant and we have performed well relative to peers,” Meyer said.

Harvard’s fiscal 2004 performance compares favorably to both other large institutions and other universities with large endowments. The endowment outperformed the median large institutional fund, measured by the Trust Universe Comparison Service (TUCS), by 4.9 percent. According to preliminary numbers, Harvard’s 21.1 percent fiscal 2004 return also beat the 17.1 percent median performance of the 25 largest university endowments.

Last year’s results bring the endowment’s 10-year performance to 15.9 percent, beating the 10.1 percent turned in by the TUCS median large fund. Meyer pointed out that had Harvard earned returns similar to that median fund, the endowment’s total would be about $12.2 billion less. That would have potentially meant hundreds of millions of dollars worth of programs would have been cut or never existed.

The endowment’s changing value is affected by several factors each year, including investment returns, new contributions, and the annual payout for University programs. The endowment stood at $19.3 billion on June 30, 2003.

Annual endowment performance is not measured just by gains or losses in value, but also by how investments perform against benchmarks in different investment classes. In fiscal 2004, Harvard’s endowment beat benchmarks in nine of 11 asset classes. Emerging market equities posted the year’s highest return, at 36.6 percent, while domestic bonds achieved the best performance relative to benchmark, posting a 9.2 percent return against a decline of 3.4 percent by the benchmark.

The endowment is not a single fund, but nearly 10,700 individual funds, many of them restricted to specific uses – such as support of a research center or the creation of a professorship in a specific subject. The funds are invested by Harvard Management Company, established in 1974 to oversee the University’s endowment, pension, trust funds, and other investments at a cost less than outside management.

Harvard seeks to spend about 5 percent of the endowment annually on University programs. Each school within the University uses a combination of income from investments, gifts from fundraising efforts, and tuition to cover the cost of educating students. Tuition from Harvard College, for instance, covers only about two-thirds of the total cost of a Harvard education. Harvard’s reliance on support from its endowment has increased in recent years. In fiscal 1994, endowment income provided 21 percent of Harvard’s total income. In the 2004 fiscal year, that figure was 31 percent.