Harvard Corporation Increases Endowment Distribution

The Harvard Corporation approved a 2 percent increase in Harvard’s endowment distribution, the revenues which the University receives annually from the endowment, from fiscal year 2013 to fiscal year 2014, according to an excerpt from Harvard’s budget guidance documents obtained by The Crimson.

The 2 percent figure represents the percent change in the amount of money withdrawn from the University’s endowment for its operations in the next fiscal year, which will begin on July 1, 2013 and last until June 30, 2014. The distribution increased by 5 percent from FY 2012 to FY 2013, which began this July. The endowment distribution varies from year to year, with the Corporation either increasing or decreasing the rate by small percentages depending on the success of Harvard’s investments and financial needs for the coming year.

The University’s budgeting process is overseen by the Corporation, Harvard’s highest governing body. Each fall, the members of the Corporation meet to approve the change in the endowment distribution for the next fiscal year, based on projected returns on the endowment, which is overseen by the Harvard Management Company. The annual University expenses coasts at roughly $4 billion. In FY 2012, $1.4 billion of those costs were covered by the endowment distribution.

In this year’s budgeting, Corporation members used conservative estimates of the University’s endowment returns, costs, and revenues, projecting figures at the “bottom end of the University’s payout policy range,” according to the budget document, meaning the payout rate, which is the percentage of the endowment used for revenues and generally falls between 5 and 5.5 percent, will probably fall closer to the latter. The document also projected an 8 percent return for the endowment by the end of FY 2013, marginally higher than the 7.25 percent that HMC targets for its average returns. The lower predicted payout rate is based on “continued volatility in the financial markets,” according to the document, which explains that Harvard’s distribution formula is designed to stabilize budgets by smoothing out endowment gains and losses over time.

The University’s Annual Financial Report for fiscal year 2012, which was released at the beginning of November, noted a small deficit of $4.5 million. In a conversation with the Harvard Gazette, Vice President for Finance Dan S. Shore attributed this to pressures on a number of revenue sources, including declining federal research funding and tuition. Shore said that this deficit should be considered “in the context of an economy that isn’t coming back as quickly as anyone would like.”

While the endowment has recovered just over half of the nearly $11 billion it lost in value following the 2008 financial crisis, Harvard administrators announced in September that the endowment investments had dropped by half a percent to $30.7 billion in fiscal year 2012—the first time the fund has dipped in value since 2009, when the endowment saw a precipitous decline triggered by the financial crisis. Prior to 2008, the endowment stood at $36.9 billion in value.

—Staff writer Samuel Y. Weinstock can be reached at