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, 2010, the market value of the Harvard School of Public Health’s endowment was $967 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 2010 return on underlying investment assets was 11.0%, while the average annual return on the endowment over the last 20 years has been 11.9%.
Q. How much income does the endowment generate each year for the School?
A. For the most recent fiscal year 2010, the operating income distribution to the School totaled $44 million and represented 13.2% of total revenue—a decline of $7 million from the prior year total of $51 million. Harvard’s distribution rate (i.e., the percentage of endowment that is withdrawn annually for operations) was 5.5% in fiscal year 2010. 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 recent decline in endowment value had on the School’s finances?
A. I In light of the extraordinary economic challenges over the past two years, the University made significant reductions in the amounts distributed from endowment funds in both fiscal year 2010 and 2011. Endowment income is not the primary source of funding for School activities, but it is a meaningful and important component of this support. While the School has focused on opportunities for more efficient and effective use of resources in an attempt to mitigate the impact of this decline, areas of the School most reliant on endowment income were challenged to compensate for this shortfall. This reduction particularly impacted the level of funding available for student financial aid and support for junior faculty members.
Q. What is the difference between restricted and unrestricted endowment funds?
A. Restricted funds are designated for specific purposes, such as professorships or scholarships, while unrestricted funds provide the flexibility to support areas of greatest need in the School, such as student financial assistance and support for junior faculty. The School has approximately 160 distinct endowment funds, with 71% of the endowment restricted for specific purposes, and 29% unrestricted and available for the Dean to direct to the most pressing and strategic priorities.
