What Are Endowment Funds?
Although their specific uses vary, endowment funds have a common purpose: to support activities not just for one year, or even one generation, but in perpetuity. Harvard University follows investment and distribution policies that aim to sustain the value of the endowment in real dollar terms for future generations while providing a steady stream of support for current operations. The Harvard Management Company, a subsidiary of the University, manages the endowment assets of the Harvard School of Public Health.
Q. What is the value of the Harvard School of Public Health’s endowment?
A. At June 30, 2013, the market value of the Harvard School of Public Health’s endowment was $1,133.5 million, which represents 3.5% of Harvard University’s total endowment. The value of the endowment is affected by several factors each year, including investment returns, new gifts, funds distributed for operations, and use of endowment appreciation for specific approved purposes. The fiscal year 2013 return on underlying investment assets was 11.3%, and the average annual return on the endowment over the last 20 years has been 12.0%.
Q. How much income does the endowment generate each year for the School?
A. For fiscal year 2013, the operating income distribution to the School totaled $46.2 million and represented 13% of total revenue – an increase of $2.7 million from the prior year total of $43.5 million. Harvard’s distribution rate (i.e., the percentage of endowment that is withdrawn annually for operations and for one-time or time-limited strategic purposes) was 5.5% in fiscal year 2013. The distribution rate may differ significantly from the annual rate of return on the endowment, since the University strives to set a rate that maintains the endowment’s purchasing power while also enabling the pursuit of nearer term goals and opportunities.
Q. What effect has the decline in endowment value had on School’s finances?
A. After the sharp decline in market value in fiscal year 2009, the University made significant reductions in the amounts distributed from endowment funds in subsequent years. While the endowment has begun to recover, it remains 13.1% below its peak June 2008 value. Endowment income is not the primary source of funding for School activities, but it is an important component of support. In an attempt to mitigate the impact of this decline, the School has focused on opportunities for more efficient and effective use of resources. However, we are challenged to compensate for this shortfall in areas where the School is most reliant on endowment income, such as student financial aid, start-up funding for junior faculty, strategic innovation and, in a climate of decreased federal sponsored support, endowed professorships.
Q. What is the difference between restricted and unrestricted endowment funds?
A. Restricted funds are designated for specific purposes, such as professorships, scholarships or targeted academic areas, while unrestricted funds provide the flexibility to support areas of greatest need in the School. The School has 182 distinct endowment funds, with 70% of the endowment restricted for specific purposes, and 30% unrestricted and available for the Dean to direct to the most pressing and strategic priorities.