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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%

Average Annual Growth Rate FY1980 - FY2000

  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% 

(1) Harvard's endowment comprises over 8,800 separate funds. Each fund has been unitized and the separate funds hold "units of the endowment" as their value. Column one shows the value of units as of July 1. (Back to data)
(2) The total return percentage reported by the Harvard Management Company is slightly higher than the one listed above as it is calculated based on reinvestment of all earnings on a monthly basis. (Back to data)
(3) As of July 1, from income earned the previous fiscal year. (Back to data)
(4) Distribution per unit (actual or effective) divided by beginning of year unit value (actual or effective). (Back to data)
(5) Net of the $1.28 per unit fringe supplement, the FY97 payout is $18.56, and the spending rate is 3.84%. (Back to data)
* Value determined at fiscal year end.
SOURCE: INTERNAL ENDOWMENT REPORTS
Updated 3/06/00