Harvard University’s endowment earned a 19.2 percent return during the year ending June 30, 2005, bringing the endowment’s overall value to $25.9 billion.
The continued strong returns buttress the endowment’s critical support for Harvard’s academic programs. In the 2005 fiscal year, endowment dollars provided almost a third of Harvard’s operating budget, or more than $850 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 2004, for example, grants to students from the University roughly doubled, to $186.9 million from $93.4 million.
Endowment dollars used for overall Harvard programs more than doubled during the same period, rising to more than $800 million from $394 million.
Harvard Treasurer Jim Rothenberg called the last two years’ results “extraordinary” and said they reflect the value that Harvard Management Company’s (HMC) managers bring to the university’s investments.
“Harvard is fortunate to have a talented group of managers and staff who have ensured that the generous gifts given by our loyal donors can grow, strengthening the support of the University’s most important priorities,” he said.
Rothenberg also announced the appointment of Peter Nadosy as the interim chief investment officer of HMC until the new CEO is in place. Nadosy ’68, the former president of Morgan Stanley Asset Management, is currently an advisory director of Morgan Stanley Asset Management and a member of the HMC Board. Nadosy will oversee the investment operations at HMC in place of outgoing president and CEO Jack Meyer who is leaving to start his own investment company.
Harvard’s fiscal 2005 performance compares favorably with 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 8.7 percent. According to preliminary numbers, Harvard’s 19.2 percent fiscal 2005 return also beat the 15.8 percent median return of the 25 largest university endowments.
Last year’s results bring the endowment’s annualized 10-year performance to 16.1 percent, beating the 9.4 percent turned in by the TUCS median large fund. Rothenberg pointed out that had Harvard earned returns similar to that median fund over the past 10 years, the endowment’s total would be about $14.4 billion less. That could have 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 $22.6 billion on June 30, 2004.
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 2005, Harvard’s endowment beat benchmarks in 10 of 11 asset classes. Private equities posted the year’s highest return, at 34.7 percent, while foreign bonds achieved the best performance relative to benchmark, posting a 20.3 percent return against the benchmark’s return of 7.9 percent.
The endowment is not a single fund, but 10,840 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 HMC, 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 1995, endowment income provided 21 percent of Harvard’s total income. In the 2005 fiscal year, that figure was 31 percent.