Harvard University Endowment: Everything you need to know

December 6, 2022
By AdmissionSight

Harvard University Endowment: Everything you need to know

What is an endowment?

To begin with, what exactly is an endowment, then? A charitable organization can establish an endowment by receiving a grant of money or property and investing the earnings for the organization’s benefit. The term “endowment” is sometimes used to describe the total value of a nonprofit organization’s investable assets (also called the “principal” or “corpus”), which are to be used for activities and programs in accordance with the donor’s intentions. Investment income from most endowments is allocated to charitable causes without touching the principal.  Let’s learn more about Harvard University’s endowment.

Trusts, private foundations, and public charities are the most common types of endowment structures. Educational institutions, such as universities, manage several endowments. Some are managed by businesses that provide a service, while others are under the purview of cultural institutions like museums, libraries, churches, secondary private schools, and healthcare facilities.

A portion of an endowment’s assets may be spent annually. When this happens, the money taken out may be made up of interest and principle. Due to fluctuations in interest rates, the principal repayment-to-income ratio may vary from one year to the next.

What is Harvard’s endowment?

So, what does Harvard University’s endowment entails? The Harvard University endowment is a committed and permanent source of revenue that ensures the university can continue to fulfill its purpose of education and research.

The returns generated by the endowment, which is comprised of more than 14,000 separate funds invested as a single entity, have made it possible to establish innovative financial aid programs, make ground-breaking discoveries in scientific research, and fill hundreds of professorships in a wide variety of academic fields.

Each year, a portion of the endowment is paid out as an annual distribution to support the budget of the University. Any appreciation that is in excess of this annual distribution, however, is held within the endowment so that it can continue to develop and assist future generations. As a consequence of this, the endowment has the potential to serve as the university’s primary source of revenue for many years to come.

One of the most important sources of revenue for the university comes from distributions made from the Harvard University endowment. During the fiscal year that ended on June 30, 2022, the endowment made distributions totaling $2.1 billion, which contributed more than a third of Harvard’s entire operating revenue.

The vast majority of the funds that are included in the endowment were given by donors to be used for particular programs, departments, or purposes such as named professorships, dedicated scholarships, and so on, and these funds are required to be spent in accordance with the guidelines that were established. The distribution from these funds can only be used for the purpose that was originally intended for the fund.

Unrestricted funds, which make up less than 20 percent of the Harvard University endowment, are characterized by a greater degree of adaptability and play an essential role in sustaining both the structural operational needs and the transformative, strategic efforts of the university.

There are twelve schools at Harvard, and each of those schools owns a portion of the endowment. More than eighty percent of the money that makes up the endowment is specifically designated by the donor to go to one particular school. The revenue profiles of schools are extremely diverse, and each institution derives a unique percentage of its annual budget from its endowment.

What does the Harvard University endowment support?

Let’s go over what the Harvard University endowment support. Among the projects are:

Working toward a net-zero portfolio

Harvard University has given the Harvard Management Company (HMC) the directive to put themselves on a course to achieve “net-zero” emissions in their portfolio by the year 2050. This directive is in line with the timetable that was established by the Paris Agreement, which is an international agreement to slow the rate of increase in the average temperature of the earth. The commitment to achieve net-zero energy use is a first for endowments in the United States.

Arnold Arboretum

The Arnold Arboretum recently celebrated 35 years of providing elementary school kids with free programs called Field Study Experiences. These programs open the doors of nature and science to thousands of children who are enrolled in the Boston Public School system each year.

The connection with the Boston Public Schools has grown over the years to include expanded opportunities for learning at the Arboretum, free bus transportation for kids and teachers, as well as specialized training for volunteers that is geared to the needs of young learners.

Financial Aid

If current forecasts hold, more than half of the students in the Class of 2023 will be eligible for need-based grants. These funds will enable families to pay an annual average of only $12,000 in tuition and fees.

Since it began the Harvard Financial Aid Initiative in 2005, Harvard University has given more than $2 billion in grant aid to undergraduate students. Additionally, the university’s budget for undergraduate financial aid awards has increased by more than 138 percent, going from $80 million in 2005 to more than $191 million in 2018.

Scientific Advancement

Researchers at the Wyss Institute for Biologically Inspired Engineering, who have expertise in fields ranging from molecular cell biology and immunology to materials science, chemical engineering, mechanobiology, and DNA origami, are at the forefront of several novels approaches for combating cancer.

Their study, which is based on the fundamental idea of modeling human behavior after natural processes, has the potential to enhance the efficacy of medicines that are now in use, develop new treatments, and even stop cancer from developing in the first place.

Art Preservation

In the fields of fine arts conservation, research, and training, the Straus Center for Conservation and Technical Studies is among the most prestigious institutions in the world. The laboratories of the center are the points of intersection between conservation, conservation science, and curatorial practice. These three areas work together to improve the understanding of, and care for, the approximately 250,000 objects that are housed in the collections of the Harvard Art Museums.

Harvard Libraries

The “Harvard’s Greatest Hits” freshmen class encourages students to investigate some of the most unique books in the Houghton Library collection.

The plan was straightforward: Put around a dozen first-year students in a room together and assign them to research some of the rarest and oldest volumes in Harvard’s Houghton Library, which is a massive collection of art, culture, history, and other related subjects.

Faculty Support

A wealthy London merchant probably had no idea that the donation he made to Harvard in 1721 would one day revolutionize the way that students are instructed in today’s institutions and lead to a significant shift in the school’s founding ethos.

Who manages the Harvard University endowment?

Moreover, you might be wondering, who is in charge of managing the endowment at Harvard?

Since 1974, the Harvard University endowment portfolio has been managed by Harvard Management Company (HMC), a non-profit organization that is a wholly-owned subsidiary of Harvard University.

HMC is solely focused on achieving successful investment outcomes in order to contribute to the University’s efforts to advance its educational and research missions. HMC is responsible for the management of the endowment in such a way that it is sustainable so that it can provide capital to support the long-term goals of the University. It is governed by a board of directors that is appointed by the President and the Fellows of Harvard College.

Why can’t Harvard endowment cover additional expenses or reduce tuition costs?

Why is Harvard unable to use a larger portion of its endowment in order to either meet its growing list of expenses or lower its tuition rates?

The earnings from the endowment contribute to the establishment of innovative financial aid programs, advancements in scientific research, and hundreds of professorships. On the other hand, there is a widespread misunderstanding that endowments can be withdrawn from like bank accounts and spent on anything at any time as long as there is sufficient funding.

Due to the fact that the endowment must be maintained in perpetuity and that it is, for the most part, regulated, the degree of financial flexibility that Harvard has when it comes to spending money from the endowment is restricted.

Endowment donations are given with the intention of benefiting both the current generation of students and scholars as well as future generations. As a consequence of this, Harvard is compelled to maintain the purchasing power of these gifts by devoting each year’s spending to a pitifully little portion of their total value. Spending much more than that throughout the course of time, for whatever reason, would elevate the present over the future in a manner that is incompatible with the core goal of an endowment, which is to promote intergenerational justice.

In addition to this, the majority of contributors will often stipulate how the money from their contribution should be used. More than eighty percent of the Harvard University endowed funds fall under the purview of these regulations. Contributions may be made in aid of a particular school, program, or extracurricular activity, but they are restricted to being utilized exclusively for the aforementioned reasons.

A press statement discussing the performance of the endowment for the given fiscal year is included in each Annual Financial Report.

The endowment at Harvard University has been around for almost 400 years, and it rightfully belongs to all of the students, faculty, and researchers who have been before and will come after them. It lends support to virtually every facet of the University’s operations.

Many endowments, including the one at Harvard, are designed to maintain their existence forever, which means that the organization will need to continue to rely on the endowment’s earnings for as long as it exists.

Because of this, our endowment is not only for the students and scholars of today’s age, but it is also for those of all future generations who will attend Harvard. Harvard University’s endowment is meticulously managed according to this idea of intergenerational equity, with the goal of ensuring that future generations will be able to reap the advantages of the endowment to the same extent as the current one can.

Indeed, Harvard, being part of the Ivy League, holds firmly to their mission to provide sustainable education to all the present and future generations. Probably, this is the reason why it continuously holds its prestige and high standard.

Every year, many students are sending in their college applications in hopes that they’ll be able to land admission at Harvard. And with this regard, AdmissionSight has opened its door with confidence that we can help.

At AdmissionSight, we have over 10 years of expertise in coaching students through the challenging admissions process to get accepted to the top colleges in the world. Feel free to make up an appointment immediately to arrange your introductory consultation.

 

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