Harvard’s endowment grew up by more than $11 billion to nearly $68 billion in fiscal year 2026 after posting a roughly 27 percent investment return, its highest since 2021, according to the University’s annual financial report released Thursday.

Harvard also reported a $100 million operating surplus — a modest 1.5 percent margin on $6.7 billion in revenue — following a major deficit last year. The $2.6 billion endowment distribution now makes up nearly 40 percent of the University’s operating revenue.

But Harvard reported a $78.7 million deficit in unrestricted funds, which support the University’s general operations. Because restricted funds are designated for specific purposes and cannot be reallocated at will, Chief Financial Officer Ritu Kalra and Treasurer Timothy R. Barakett ’87 wrote the surplus is “an insufficient measure of Harvard’s financial health.”

Harvard also faced the first accounting impact of an increased endowment tax, which is set to rise from 1.4 percent to 8 percent under the One Big Beautiful Bill Act, enacted by Republicans in July 2025.

Even at the previous 1.4 percent rate, which applied in fiscal year 2026, Harvard’s taxes on investment income for the year more than quadrupled, from $47.3 million to roughly $207 million, reflecting higher realized investment gains. Nearly $181 million was attributable specifically to the endowment’s investment income.

The returns followed Harvard’s August disclosure of its $2.2 billion stake in SpaceX, which went public in June in the largest initial public offering in history. The position was worth more than all of the endowment’s other reported public holdings combined.

Harvard’s tax liability jumped from $317 million to $1.9 billion, most of which reflects estimated future taxes on unrealized investment gains under the new rate. The tax is expected to cost Harvard roughly $300 million each year. Though the higher rate will take effect in fiscal year 2027, the University is required to book the effect of the law this year.

The modest surplus follows the operating loss of $113 million the University reported in fiscal year 2025 — its first since the pandemic and its largest deficit since 2011 — amid the Trump administration’s mass cuts to federal research funding earlier that year.

Kalra and Barakett attributed the modest 1.5 percent margin to “elevated legal costs along with other pressures that show little sign of abating.”

Harvard reported a 58 percent increase in legal fees in fiscal year 2025, according to University tax returns, a dramatic rise amid court battles with the Trump administration and multiple federal investigations. Harvard President Alan M. Garber ’76 acknowledged the surge at a Sunday event, calling the costs “mind-boggling.”

But efforts to cut costs were effective in some areas, according to the report. “All other expenses,” a category that includes legal fees, rose just 1 percent, with continued increases in legal costs “partially offset by broader cost-saving initiatives.”

Salaries and wages — the University’s largest expense — declined by $104 million, a nearly 4 percent decrease that Kalra and Barakett attributed to “a hiring freeze, attrition and restructurings” that reduced the University’s workforce. The report also cited a wage freeze for the University’s non-union employees. Overall expenses fell more than 2 percent to $6.64 billion.

The decline, which reflects the fiscal year ending June 30, came just before the Faculty of Arts and Sciences eliminated 165 positions over the summer in a massive restructuring. The changes could save roughly $20 million annually for the FAS, Dean Hopi E. Hoekstra said earlier this month.

“Those two facts — a surplus, and a smaller community — sit uneasily together,” Kalra and Barakett wrote. “Yet they cannot be separated.”

Harvard also increases its operating liquidity to $3 billion in 2026 — up 25 percent from fiscal year 2025 — providing a cash cushion amid the ongoing federal financial pressure.

Operating liquidity has risen steadily over the last two years, increasing 50 percent from $2 billion in fiscal year 2024.

Harvard spent $969 million on capital projects, including undergraduate and graduate house renewal, deferred maintenance, academic spaces, and continued developments in Allston, according to the report. The report also highlighted the opening of the Enterprise Research Campus in Allston, a development built by a third party on land leased from Harvard. The buildings are not owned by the University.

Letters of credit — financial guarantees issued by banks — jumped to $39.1 million from $3 million in 2025, reflecting “contingent obligations supporting various contractual and regulatory requirements,” according to the report. The letters of credit remained undrawn, meaning the University arranged guarantees but has not used them.

The 27 percent return marks a rare high for Harvard. The endowment returned 33.6 percent five years ago, its highest return since the 32.2 percent recorded in 2000.

But Harvard’s return still trailed those reported by several major peer institutions. Stanford reported a 31.7 percent return, while the University of Pennsylvania returned 27.4 percent. Brown University returned a return of nearly 20 percent, while MIT trailed with just over 10 percent.

HMC has expanded its presence in the technology sector, opening a satellite office in San Francisco. Harvard Management Company Chief Executive Officer N.P. “Narv” Narvekar publicly acknowledged the opening for the first time in the report, writing that the decision to open the office one year ago has “aligned well with the extraordinary progress in artificial intelligence.”

Narvekar wrote that this year’s return was driven primarily by venture capital, public equities, and hedge funds, and that the endowment has earned an annualized 11.4 percent over his nine-year tenure.

Narvekar also confirmed he had begun discussions with HMC’s board of directors earlier this year to plan for his eventual retirement. He told members of the board in May that he planned to retire as early as 2027.

Harvard also continued to move toward private equity, which now makes up 46 percent of its portfolio. Venture capital and growth venture investments, part of that category, rose from 24 percent to 31 percent of the portfolio.

—Staff writer Megan L. Blonigen can be reached at [email protected] and on Signal at mblon.50. Follow her on X at @MeganBlonigen.

—Staff writer Graham W. Lee can be reached at [email protected]. Follow him on X at @grahamwonlee.