Endowment behind Crimson despite increase in returns

Harvard may have beaten Yale at the Game last fall, but the University’s investment managers outperformed their Crimson counterparts in endowment growth this year.

Yale posted a 22.3 percent return on its endowment during the past fiscal year, beating all of the peer institutions that have reported their returns thus far as it grew to $15.2 billion. Though Harvard’s endowment is larger overall, totaling $25.9 billion at year’s end, it earned only a 19.2 percent return on its endowment during that period. While some Ivy League schools have yet to release figures for their returns over the last year, Columbia has reported preliminary returns of 17.7 percent, and Brown, Cornell, and Dartmouth all reported earnings between 13 percent and 15 percent.

In recent years, rising endowment returns have become a critical part of the University’s budgetary planning. Last year, Yale raised the cap on endowment spending from five to 5.25 percent to help cut a $15 million budget deficit. Yale Provost Andrew Hamilton said the rising endowment has helped defray costs for last year’s changes to Yale’s financial aid policy, organic food policy, and building renovations.

Although Yale and Harvard have boasted steep endowment returns in recent years, most U.S. universities grow at slower rates. Endowment growth across most U.S. universities will likely average between eight and 12 percent this year, Commonfund Instititute Executive Director John Griswold ’67 said.

“Even if you got 10 percent last year, that might be a nice number for you, depending on what asset allocation you have and what risk tolerance you have,” said Griswold, whose institute serves as the educational arm of a group that provides fund management and investment advice to many universities. “Not everybody looks like Harvard and Yale, and not everybody can look like them.”

Harvard investment officials are aiming to spend approximately five percent of the university’s endowment on various expenditures with a special emphasis on financial aid and endowed professorships this year, Harvard spokesman Al Powell said. But some Harvard alumni have objected to endowment investment managers’ salaries and bonuses, which exceeded $30 million for each of the top two earners in 2003.

“We believe that the endowments should be used for the benefits of current and future generations of students,” said William Strauss, a 1969 Harvard graduate who had led a sustained campaign against what he calls excessive payouts for HMC staff. “There was a year in which Harvard spent one-eighth of its endowment earnings on its fund managers.”

Strauss said continuing to increase tuition at both Harvard and Yale in the wake of enormous growth in their endowments is “unnecessary, inappropriate and inconsistent with the values of a great university.”

But Griswold said a substantial increase in spending from university endowments could hinder future growth.

“Running the spending cap at more than four, four and a half percent runs the risk of depleting the endowment going forward,” he said. “Philosophical questions — how big does it need to be, what are you trying to do with it — are really out of control of the administration in large measures.”

During the past decade, Yale’s endowment grew at an average rate of 17.4 percent, compared to Harvard’s average annual return of 16.1 percent, and both placed in the top 1 percent of institutional funds. The S&P 500 index had an annualized return of 8.1 percent over the same period.

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