The University yesterday announced its highest increase to endowment
payout in five years, acknowledging that the distribution of funds from
the endowment to its schools had failed to keep pace with high returns
on Harvard’s investments.
Each year, money from the endowment—the University’s war
chest—is disbursed to all of Harvard’s schools. Along with tuition,
sponsored research, and other sources, the payout is a component of the
schools’ operating revenue each year.
The Harvard Corporation, the University’s highest governing
body, voted on Nov. 7 to approve a five-percent increase in base payout
for the next fiscal year, which begins July 1, 2007. While the start of
fiscal 2007 is more than six months away, the University announces the
increases early to allow schools to plan their budgets.
Certain projects at the schools will also be eligible for an
additional six-percent increase—an “incremental payout” intended to
fund strategic initiatives.
These projects must be agreed upon both by school deans and by
University President Lawrence H. Summers to receive the extra endowment
funding—giving Harvard’s central administration a greater hand in
defining “strategic priorities” at the schools.
The practice of providing certain projects with further
increases was first implemented in the current fiscal year, 2006. This
year’s incremental payout is being used, in large part, to fund
additional faculty and increases to financial aid, wrote Vice President
for Finance Ann E. Berman in an e-mail last night.
After its introduction last year, the incremental payout
appears to be here to say. According to the Corporation’s preliminary
guidance on payouts for the next few years, released yesterday, the
University will offer incremental payouts at least through 2010.
The guidance for the Corporation calls for annual increases to
base payout of four percent in fiscal years 2008, 2009, and 2010.
Schools will see incremental payout increases in those years of four
percent, three percent, and two percent, respectively.
The combined increase will bring a total rise of 11 percent
for some projects—a modest increase over the four percent base and four
percent incremental increases that took effect this year.
A letter distributed to administrative and financial deans at
Harvard’s schools, provided by Berman, said that the recent years’
increases to endowment payout had not kept pace with the University’s
soaring investment returns. Investment returns were up 19.2 percent
last fiscal year, growing the endowment to a mammoth $25.9 billion.
Harvard earned a 21 percent return the previous year.
“Due to two years of higher-than-expected endowment returns,
the current endowment spending rate has declined below our desired
target spending,” the letter states.
While payout from the endowment rose 37 percent in fiscal year