Harvard Endowment Returns 12.2 Percent
1999 HARVARD GAZETTE © 9/23/99
Copyright 1999 President and Fellows of Harvard College
http://vpf-web.harvard.edu/factbook/98-99/page39.htm
Harvard University's endowment has increased to about $14.4 billion, a 12.2 percent investment return for the 1998-99 fiscal year. Harvard's endowment is the result of gifts to the University over time as well as investment income from those gifts. endowment income provides critical long-term financial stability for Harvard's academic programs.
Between 4 percent and 5 percent of the endowment is typically spent annually on Harvard programs. endowment income makes up about $500 million of Harvard's roughly $1.8 billion yearly operating budget. That money helps pay for many expenses across the University, including those in the nine teaching faculties that educate more than 18,000 students annually.
In fiscal 1999, the endowment continued its strong performance in domestic stocks, increasing 25.8 percent against a benchmark of 21.3 percent. endowment investments also beat benchmarks in foreign stocks and in foreign and domestic bonds. Performance fell short of benchmarks in several areas, however, such as emerging markets, private equities, commodities, and real estate.
"Fiscal 1999 was a mixed year in terms of performance," said Jack R. Meyer, president and chief executive officer of the Harvard Management Company, adding that venture capital was a significant area of difficulty. "Due to strong competition from other institutional investors, we have been unable to place as much money as we would like with top venture capital funds. The result was we were underweighted in a year when venture capital returns soared."
Among other things, endowment income supports Harvard's generous student financial aid programs, which permit the University to admit qualified students regardless of their ability to pay. Last December, the University announced a major increase in the payout from the endowment –– $95 million –– to finance increased undergraduate and graduate student financial aid, reduce class size, recruit faculty, and invest in new technology.
The endowment is not a single fund, but more than 8,600 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 the University-owned Harvard Management Company (HMC), established in 1974 to oversee the University's endowment, its pension and trust funds, and other investments.
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. Ten years ago, the endowment provided 17 percent of Harvard's operating budget; today that figure is more than 25 percent.
Though the endowment's fiscal 1999 performance did fall short of the 20.5 percent return in FY 98, it still beat inflation by 10 percentage points and beat by a point the typical large investment fund's performance, represented by the Trust Universe Comparison Service, which measures 99 funds with assets over $1 billion.
Five-year performance reflected the higher returns of recent years, averaging 20.1 percent and beating both internal and external benchmarks in most investment areas.
Historical Endowment Performance: FY1980 - FY2000
(URL: http://vpf-web.harvard.edu/factbook/99-00/page39.htm)
| Dollar Value and Percentage Beginning Value Per Unit | |||||||||
| Fiscal Year | Unit Value at Beginning of the Year(1) | Income | Capital Gain | Total Return(2) |
Actual Distribution Per Unit (3) |
Spending Rate (4) | |||
| 1980 | 124.87 | 8.72 | 7.0% | 10.23 | 8.2% | 18.95 | 15.2% | 6.77 | 5.42% |
| 1981 | 135.10 | 9.52 | 7.0% | 5.40 | 4.0% | 14.92 | 11.0% | 6.97 | 5.16% |
| 1982 | 140.50 | 12.34 | 8.8% | -12.46 | -8.9% | -0.12 | -0.1% | 7.18 | 5.11% |
| 1983 | 128.04 | 10.83 | 8.5% | 43.01 | 33.6% | 53.84 | 42.0% | 7.40 | 5.78% |
| 1984 | 171.05 | 10.71 | 6.3% | -16.92 | -9.9% | -6.21 | -3.6% | 7.40 | 4.33% |
| 1985 | 154.13 | 11.52 | 7.5% | 28.34 | 18.4% | 39.86 | 25.9% | 7.58 | 4.92% |
| 1986 | 182.47 | 12.53 | 6.9% | 42.28 | 23.2% | 54.81 | 30.0% | 7.86 | 4.31% |
| 1987 | 224.75 | 11.16 | 5.0% | 32.03 | 14.3% | 43.19 | 19.2% | 8.09 | 3.60% |
| 1988 | 256.78 | 10.41 | 4.1% | 3.57 | 1.4% | 13.98 | 5.4% | 8.49 | 3.31% |
| 1989 | 260.35 | 13.94 | 5.4% | 18.27 | 7.0% | 32.21 | 12.4% | 10.16 | 3.90% |
| 1990 | 278.62 | 14.57 | 5.2% | 6.04 | 2.2% | 20.61 | 7.4% | 10.65 | 3.82% |
| 1991 | 284.66 | 12.75 | 4.5% | -9.72 | -3.4% | 3.03 | 1.1% | 11.96 | 4.20% |
| 1992 | 274.94 | 11.87 | 4.3% | 20.26 | 7.4% | 32.13 | 11.7% | 12.44 | 4.52% |
| 1993 | 295.20 | 11.70 | 4.0% | 36.68 | 12.4% | 48.38 | 16.4% | 14.08 | 4.77% |
| 1994 | 331.88 | 13.19 | 4.0% | 19.05 | 5.7% | 32.24 | 9.7% | 15.01 | 4.52% |
| 1995 | 350.93 | 11.90 | 3.4% | 45.87 | 13.1% | 57.77 | 16.5% | 16.07 | 4.58% |
| 1996 | 396.80 | 15.23 | 3.8% | 86.03 | 21.7% | 101.26 | 25.5% | 17.20 | 4.33% |
| 1997 | 482.83 | 14.60 | 3.0% | 106.53 | 22.1% | 121.13 | 25.1% | 19.84(5) | 4.11% |
| 1998 | 589.36 | 10.64 | 1.8% | 108.45 | 18.4% | 119.09 | 20.2% | 21.90 | 3.72% |
| 1999 | 697.81 | 21.57 | 3.1% | 60.94 | 8.7% | 82.51 | 11.8% | 23.14 | 3.32% |
| 2000 | 758.75 | * | * | * | * | * | * | 30.15 | 3.97% |
|
Unit Value at Beginning of the Year |
Actual Distribution Per Unit |
|
| 20 YEAR | 9.4% | 7.8% |
| 10 YEAR | 10.5% | 11.0% |
| 5 YEAR | 16.7% | 13.4% |
| 1 YEAR | 8.7% | 30.3% |