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Harvard endowment posts strong returns

In pandemic, divide between haves and have-nots in higher education widens

The value of Harvard University’s endowment grew by $1 billion, to reach an all-time high of $41.9 billion, in the fiscal year that ended in June.
The value of Harvard University’s endowment grew by $1 billion, to reach an all-time high of $41.9 billion, in the fiscal year that ended in June.Charles Krupa/Associated Press/File 2017

The world’s richest college just got richer: Harvard University on Tuesday posted investment returns of 7.3 percent for the past fiscal year, even as less wealthy higher education institutions are desperate for a federal bailout, and some are fighting for survival.

The value of Harvard’s endowment grew by $1 billion, to reach an all-time high of $41.9 billion, in the fiscal year that ended in June, the Harvard Management Company, which oversees the investment, reported Tuesday.

The coronavirus pandemic has underscored the importance of these endowments to universities and broadened the wealth gap between colleges with resources and those without. Institutions with large endowments built over centuries have more of a cushion than institutions with less wealth, and fewer deep-pocketed donors, to cover higher costs and revenue declines brought on by the pandemic.

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“Much like there are millionaires and billionaires who have been doing well right now, so are these colleges,” said Ben Miller, who researches college finances at the left-leaning Center for American Progress. “The vast majority of colleges are not Harvard, Yale, and Princeton. . . . There are some places that are seeing how long that they can make it last.”

Colleges have spent millions of dollars to pay for greater COVID testing of students and more technology to conduct remote classes.

At the same time, fewer students are living on campus, so colleges are taking in less money through room and board fees. Many students are deferring for a semester or year, instead of enrolling in mostly remote classes, so overall undergraduate enrollment is down. Institutions are also getting less revenue from international students, many of whom remain abroad, and because of reduced attendance at, or cancelled, college football games.

Public colleges and universities are also expecting to receive less money from cash-strapped state governments.

The American Council on Education, a trade group, estimates that the coronavirus pandemic has cost the country’s colleges and universities more than $120 billion and is urging Congress to earmark more money for higher education in the next federal financial relief package. They warn the need is dire: Some colleges have already laid off or furloughed workers and cut back programs.

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But having a large endowment with robust returns can help institutions weather these challenges and keep cuts to a minimum, said Robert Kelchen, an associate professor of educational leadership, management, and policy at Seton Hall University. Universities typically use their endowments for financial aid to students, to help pay employee salaries, and to offset operating costs.

“Money is hard to come by right now, and having that additional backstop is incredibly important,” Kelchen said. “Instead of a $40 billion, they’re lucky if they have $40 million.”

For students, that can translate to saving positions such as academic advisors, he said.

“If you can’t talk to an academic advisor because there aren’t any, or aren’t enough, that could be the difference between staying in school and dropping out,” Kelchen said.

Before COVID, several small colleges in New England closed or merged because of financial instability, and higher education experts worry that more institutions nationwide could meet a similar fate if the expenses and losses continue into next year.

On Tuesday, Harvard announced that due to the “unexpectedly strong performance of the endowment this year” it will make an additional $20 million available to its various schools to offset the pandemic costs.

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But even Harvard is expressing concern about a pandemic-related pinch. In a letter to the Harvard community, the university’s president, Larry Bacow, warned that the university experienced only its second decline in revenues since World War II this past year. The last time the university saw revenues decline was in the last recession during 2008-2009.

“Harvard is well-resourced, but that does not mean we can sustain long-term deficit spending,” Bacow wrote in the letter. “We will need to make tough decisions in the future if we hope to sustain and advance priorities related to our core academic mission.”

For Harvard and many other universities, endowment returns have been a bright spot in an otherwise dismal financial situation, said Nick Ducoff, the cofounder of Boston-based Edmit, a college advising service that offers consumer financial information on institutions.

“Many schools have big holes to fill, even with the silver lining of endowment returns,” Ducoff said.

Harvard’s investment returns outperformed Yale University, a longtime standard bearer, which last week reported its endowment returned 6.8 percent this past fiscal year and its value rose by $900 million to $31.2 billion. The University of Pennsylvania’s $14.9 billion endowment posted 3.4 percent returns. Dartmouth College announced its $6 billion fund returned 7.6 percent. And MIT’s $18.4 billion endowment generated an investment return of 8.3 percent.

For Harvard, the 2020 returns mark a significant improvement. The university has overhauled its endowment in recent years after a string of disappointing returns. In the fiscal year that ended in June 2019, Harvard’s fund returned 6.5 percent.

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“As we continue to make progress in the five-year transition of HMC and our investment portfolio, we are mindful that there is much left for us to accomplish,” N.P. “Narv” Narvekar, the management company’s chief executive, said in a brief statement.

With the better fund performance, Harvard and other institutions will likely face pressure to spend more of their endowment to offset cuts.

In the fiscal year that ended in June 2019, Harvard dispersed $1.9 billion from its endowment, accounting for more than a third of the university’s operating revenue, including $193 million for undergraduate financial aid.


Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.