In Tough Year, Endowment Falters

Benny Wijatno

Harvard’s endowment slipped for the second year in a row but fared significantly better than market benchmarks during Fiscal Year 2002 (FY02), according to figures released yesterday.

The endowment dropped from $18.3 billion to just over $17.5 billion, hurt by a 0.5 percent decline in investment returns and an increase in endowment pay-outs, according to Jack E. Meyer, president of the Harvard Management Company (HMC), the group responsible for investing Harvard’s endowment.

This FY02 figure factors in a loss of $100 million in investments, $750 million in spending and $150 million in additional donations to the University.

In FY01, the return on investments fell 2.7 percent, causing a $500 million decrease from the endowment’s peak of $19.2 billion, which it hit in 2000.

“We may not be out of the woods, but the endowment has weathered the two-year storm in fine shape,” he wrote in the annual report.

Although the endowment has decreased over the past two years, its payout has increased in recent years, with endowment spending rising annually in the last decade. In FY97, pay-outs added up to only $328 million compared to last year’s total of more than twice that amount.


The University typically tries to pay out about 4 percent of the endowment annually, although the final percentage typically is about 3.5 percent.

University Treasurer D. Ronald Daniel could not be reached for comment yesterday.

The Returns

The figures that HMC released yesterday indicate that the endowment performed relatively well in a rough economic environment that has characterized recent years.

Meyer wrote in the annual report that Harvard’s ten-year performance has surpassed its peers and outperformed the market averages, or benchmarks, that HMC uses to judge the endowment’s performance.

“If Harvard had earned median returns over the past ten years (which is what one would expect from a large, diversified fund), Harvard would have $8 billion less than it actually has now,” he wrote.

Over the past two years, Harvard endowment returns have dropped 3.2 percent, while the S&P; 500 has fallen 32 percent and the NASDAQ has declined 63 percent over the same time period.

In fact, in most asset classes during FY02, Harvard met or outperformed its benchmarks.

Emerging markets investments—which include Brazil, Mexico, Taiwan and China—increased 7.5 percent against a benchmark of 1.9 percent.

Investments in foreign bonds also performed well, returning 32.4 percent against a 15.6 percent benchmark, along with absolute returns, which increased 10.2 percent against a 4 percent benchmark decline.