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The Urgency of the Present

Sub-par endowment returns are one of the greatest threats to Harvard today

By The Crimson Editorial Board

Harvard faces numerous pressing issues: a suboptimal social scene, growing competition from other universities for talent, and critical challenges to diversity and inclusion. Unfortunately, last week brought another, this time in the form of a renewed challenge to the endowment’s stable growth. Specifically, Harvard Management Company announced a $2 billion loss for fiscal year 2016.

Let’s not mince words: this is unacceptable.

Over the past several years, Harvard’s endowment returns have failed to keep pace with peer schools’ returns. In fiscal year 2015, Harvard ranked penultimate among Ivy League institutions, with Princeton besting Harvard Management Company by nearly seven points. At the time, University President Drew G. Faust referred to these poor results as “concern[ing]." This year’s loss is only the culmination of this underperformance since the financial crisis.

As crass as it might be to say, money makes Harvard go round. We are a nonprofit institution of higher learning, but educating young people is expensive. Paying professors is expensive; maintaining dorms is expensive; funding research is expensive. As we stated this spring, 35 percent of the University budget is funded by the endowment. Far from a pot of gold in the sky, the endowment and its performance have tangible effects on University life and activities. The financial crisis and consequent portfolio losses demonstrated that much. Students—and administrators—would do well to recognize that reality.

We’re glad that Harvard has chosen not to cut budgets in the wake of this most recent loss, and we are cognizant of the fact that current-use gifts and tuition may help to bridge this small (in percentage terms) loss. However, when fundraising priorities like House renewal are already behind schedule—and the administration is voluntarily drawing funds from the endowment to operate the University—the returns produced by HMC are ever more critical.

Indeed, endowment underperformance outweighs the potential benefits of fundraising. As we opined in 2015, major gifts are dwarfed by potential investment gains in a portfolio as massive as Harvard’s. A one percent rise in returns equates to about $350 million—approximately the size of the gift that renamed the School of Public Health. This year’s losses of $2 billion amount to five separate gifts the size of the one that renamed the School of Engineering and Applied Sciences. If those numbers are large enough to rename a school, it’s clear the administration must move fast to rectify a problem with financial consequences multiple times larger.

We don’t mean, however, to disregard the role of development. The Harvard Campaign is important for the University’s future, and as we said when it was launched, the resources it seeks will have an important role in charting Harvard’s role in the 21st century. Yet the inescapable corollary is that a failure to steward those gains will make the entire exercise less valuable. Former University President Lawrence Summers told The Crimson last year: “The quality of the endowment's performance, far more than fundraising, will determine whether Harvard remains preeminent.” We couldn’t agree more.

We also recognize that we are not investment advisors. College students have no business telling seasoned analysts and managers where to invest the endowment. Instead, we wish to urge the administration to prioritize endowment performance before Harvard falls further behind peer institutions.

We don’t know whether the answer lies in increased compensation at HMC, a different asset mix, or a more fundamental strategic rethink. But we hope to underline the importance of this problem in the minds of President Faust and the Corporation. If indeed the Harvard Campaign is infused, as Faust writes, with “the urgency of the present and the promise of the future,” so too should be her efforts to set the endowment on a solid footing for the future.

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