Harvard University, the world’s wealthiest higher education institution, has recorded another historic endowment growth of 27 percent, making its total endowment for the 2020-21 fiscal year $53.2 billion.
In the school’s annual financial report published Thursday, Harvard Management Company (HMC) chief executive officer Narv Narvekar revealed that public and private equity markets served as the primary drivers behind the tremendous growth, boosting 50 percent and 77 percent returns, respectively.
He also pointed out that such markets managed to perform strongly amid the COVID-19 pandemic, which caused financial pressures and challenges to all academic institutions.
Of the whopping $53.2 billion endowment, only five percent was used to fund the operation of the university. As a result, the school ended the fiscal year with a $283 million operational surplus.
Despite the historic growth, Harvard’s returns still lagged behind other Ivy League institutions. Dartmouth College has tallied 47 percent returns, while the University of Pennsylvania recorded 41 percent returns at the end of the 2020-21 fiscal year.
‘Understanding Risk Tolerance’
In 2018, Harvard established a risk tolerance group to identify and assess how the endowment could take on more risk while still balancing the school’s need for financial stability.
HMC was then seen reducing its assets in real estate markets, public equity, and natural resources while increasing exposure to private equity.
Meanwhile, Narvekar pointed out that despite the school recording high endowment value, Harvard should not be expected to gain similar strong returns every year.
“There will inevitably be negative years, hence the importance of understanding risk tolerance,” Narvekar explained, as quoted by The Harvard Crimson. “What is more important is that our team, investment process/analytics, organizational structure, culture, and aligned incentives provide HMC with the framework for long-term success.”