Yesterday in The New York Times, Geraldine Fabrikant wrote about the remarkable growth of the Harvard University endowment in the year that ended on June 30, 2008. The interim management (a Harvard Business School professor was standing in until Jane Mendillo of Wellesley College began on July 1) of the endowment was able to produce an 8.6-percent return for the fiscal year. This is in fact a lower number than in previous years, but Harvard reported that it did better than 95 percent of a universe of comparably large institutional funds. The net gain for the endowment was almost exactly $2-billion, and thus the total Harvard endowment is just shy of $37-billion.
These are huge numbers, even for elite universities. A total endowment of $2-billion, to provide perspective, would have ranked 32 among all American university endowments in 2007. Or, to put Harvard in a different context, its $36.9-billion total endowment would have placed it second last year on the list of the largest American private philanthropic foundations, only a few billion dollars behind the Bill & Melinda Gates Foundation, at nearly three times the size of the second-ranked Ford Foundation endowment.
Let’s be clear. Harvard manages its endowment very well, and that is why the endowment increases substantially even in a precarious international financial environment. Harvard’s is consistently one of the top performers among university endowments. But of course size matters. Eight or 9 percent of $35-billion produces hugely more revenue than a 20-percent return on a much smaller endowment — and last year there were only five American university endowments of $15-billion or more, and the sixth largest endowment was only just under $10-billion. This means that Harvard and a few other university endowments (my own included) will grow geometrically, while the others will grow arithmetically. The current worrisome asymmetry in university wealth will, that is, continue to grow. It is not that the poor are growing poorer, but that the mega-rich are getting mega-richer. Just like individual wealth in these United States. And nothing will stop that trend in the university world.
The larger question is the one that Senator Grassley and others have been asking—how much endowment revenue is being spent each year, and what is it being spent for? Fabrikant points out that that “last year, contributions from the endowment to the Harvard budget totaled $1.6-billion, which accounted for more than a third of the university’s operating budget.” That is a high proportion, comparatively, and it is growing. I believe the same trend is apparent at the other mega-rich universities. Nevertheless, there will continue to be questions about whether these institutions are paying out enough each year. There will also be questions by alumni and other modest givers to the great universities about why they should give to their mega-alma maters rather than to their local soup kitchen. I understand the intellectual case for continued small-time giving, but the comparative case is much harder to make. Many of us are going to worry more about the soup kitchen.
