Harvard University’s endowment earned an 8.6 percent return during the fiscal year ending June 30, 2008, bringing the overall value of the University’s endowment to $36.9 billion.

The continued strong returns reinforce the endowment’s ability to provide critical support for Harvard’s academic programs and mission. In fiscal 2008, distributions from the endowment totaled $1.6 billion, contributing more than one third of the University’s operating budget in addition to supporting substantial capital outlays.

Harvard’s endowment helps the University undertake 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.

Strong endowment returns in recent years have enabled the University to make substantial new investments in financial aid. Support for undergraduates is expected to increase by approximately 25 percent, as Harvard College awards more in financial aid as a result of the recent enhancements directed toward lower, middle, and upper-middle income students. In addition, recent investments in financial aid have helped to reduce the median debt burdens for undergraduates by more than 50 percent, from approximately $14,000 in fiscal year 2001 to less than $7,000 in fiscal year 2008.

Significant enhancements to financial aid were also made at a number of Harvard Schools. In mid-March 2008, Harvard Law School (HLS) announced that it will waive tuition for third-year law students who pledge to spend five years practicing law either for the government or for nonprofit institutions, and Harvard Medical School (HMS) announced that family contributions will be eliminated for entering students whose parents earn less than $120,000 per year.

Throughout the University, scholarships and awards to students from University funds have more than doubled from fiscal 2001 to fiscal 2008, reaching $321 million from $156 million.

This year saw transition in the leadership of Harvard Management Company (HMC). Jane L. Mendillo re-joined HMC effective July 1, 2008 as President and Chief Executive Officer. Mendillo came to Harvard from Wellesley College where she managed the Wellesley endowment as its chief investment officer since February 2002. Mendillo, who spent nearly 15 years at HMC earlier in her career, knows HMC’s culture of excellence and professionalism well.

Robert S. Kaplan, Professor of Management Practice at Harvard Business School and former Vice Chairman of The Goldman Sachs Group, Inc., served as Acting President and Chief Executive Officer of HMC from early November 2007 through June 30, 2008. Effective July 1, 2008, Kaplan joined the Board of HMC. Kaplan provided strong leadership to HMC during a period of extraordinary market turbulence. Kaplan commented, “I have been exceptionally impressed with the hard work, dedication, and commitment to excellence of the superb professionals at HMC. During this period of extreme market volatility, the staff at HMC has performed at an extraordinarily high level.” Kaplan succeeded Mohamed El-Erian, who announced in September 2007 his intention to leave HMC. El-Erian formally resigned at the beginning of December.

In addition to outpacing the University’s total return target, HMC significantly out-performed relative to its internal benchmark. Furthermore, the fiscal 2008 performance compares favorably to that recorded by other large investment management institutions. Specifically, the endowment’s return of 8.6 percent puts it above the fifth percentile of the 165 large institutional funds as measured by the Trust Universe Comparison Service (3.2 percent) and well above the median (negative 4.4 percent). Relative to the major U.S. indices, the endowment out-paced the negative 13.1 percent registered by the S&P 500 Index in Fiscal Year 2008 and the 7.1 percent registered by the Lehman Aggregate Index (which is a broad measure of bond market performance). Speaking of fiscal year 2008 performance, Mendillo said, “With the work of talented staff, HMC registered a solid year of returns during challenging market conditions and a period of organizational transition. As a result, HMC provided critical support to a wide range of educational endeavors at the University.”

The 8.6 percent return for the last fiscal year brings the endowment’s annualized 10-year performance to 13.8 percent and the 5-year annualized return to 17.6 percent. The endowment’s total value is affected by several factors each year, including investment returns, new contributions, and the annual payout for University programs. The endowment stood at $34.9 billion on June 30, 2007.

The endowment is not a single fund, but more than 11,000 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, which oversees the University’s endowment, pension, trust funds, and other investments at a cost less than outside management.

Harvard seeks to spend about five 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.