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Unit Economics

Harvard Endowment Increases $11.3 Billion to $53.2 Billion, and University Operations Yield $283-Million Surplus Despite Pandemic

A 33.6 percent return on endowment investments, as expense controls and donor support buoy the budget in an unprecedented year

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Marcelino Pantoja founder-in-residence
over 2 years ago

Founder-in-Residence @ Platform Venture Studio

Private equity returned 77% for FY 2021 at Harvard. The $53 billion endowment now supports 39% of the school's operating budget.

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"As sophisticated observers are aware, building venture capital portfolios is a multi-year effort for several reasons: vintage year diversification, highly prudent manager selection, and the years it takes for these exceptional managers to competently invest our capital. Perhaps not surprisingly, a very large share of the tremendous gains from venture funds over the last year related to investments made over a decade ago. Therefore, our recent venture investments could take about a decade to bear fruit, though up rounds are happening much quicker today than in normal market periods. We expect an inevitable pullback, but also believe that certain tech and healthcare sectors offer great secular growth opportunities in the longer term."

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"In order to maximize the endowment’s returns in support of Harvard’s mission, Harvard should take an appropriate amount of risk, subject to some important constraints. The main constraint for any university is its ability to absorb a significant reduction (even if only temporary) in the value of the portfolio and the resulting reduction in distributions critical to the annual operating budget. Furthermore, since most of the highest risk assets are illiquid ones (such as venture capital funds) a major decline in market/portfolio will generally result in a reduction in portfolio liquidity, a potential issue for both HMC and Harvard. How much portfolio risk can and should Harvard tolerate? While this appears to be a simple question, the answer is less obvious."

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"That means that 49 percent of University revenue is from the endowment—which can be very volatile, depending on market conditions and Harvard’s investment strategy—and current-use gifts. As discussed below, the endowment’s performance was historically strong in fiscal 2021, but Harvard’s increasing dependence upon it makes setting the appropriate guardrails and executing the investment strategy ever more important. And although donors’ current giving surpassed expectations at the worst moments early in the pandemic, their largess is not inexhaustible."

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