Invest Like Harvard: Accessing The Endowment Fund

Harvard University's endowment is the largest academic endowment in the world, valued at $50.7 billion as of June 30, 2023. The endowment is a dedicated and permanent source of funding that supports the university's mission of teaching and research. It is made up of more than 14,000 individual funds, with the two largest categories supporting faculty and students, including professorships and financial aid. The endowment's returns have enabled leading financial aid programs, scientific research, and hundreds of professorships across various academic fields. Each year, a portion of the endowment is paid out as an annual distribution, while any excess appreciation is retained to support future generations. Distributions from the endowment provide critical funding for the university, contributing over a third of Harvard's total operating revenue. While most of the funds are donor-directed towards specific programs or purposes, unrestricted funds account for about 20% of the endowment and are crucial for structural expenses and strategic initiatives.

Harvard Management Company (HMC)

The Harvard Management Company (HMC) is a Harvard-owned investment management company that has managed the University's endowment portfolio since 1974. It is a 501(c)(3) non-profit entity and is, therefore, exempt from federal income taxation.

HMC employs financial professionals to manage the approximately 12,000-14,000 funds that constitute the endowment. The company directly manages about one-third of the total endowment portfolio while working closely with external companies that manage the rest. HMC is governed by a board of directors appointed by the President and Fellows of Harvard College.

HMC's generalist investment model breaks down silos among asset classes to search the world for the most attractive risk-adjusted returns. The company combines processes with a partnership culture, encouraging focused debates about investment opportunities. This results in an investment team with a singular focus: the performance of the overall endowment.

HMC has developed and maintained partnerships with a variety of world-class asset managers for over 45 years. The company was among the earliest institutional investors in venture capital and one of the first in natural resources and emerging markets. Their partners include both early-stage and established investors, small and large institutions, with a wide range of mandates—geography, sector, and strategy.

HMC takes a long-term view of its investments and their associated risks. It believes that identifying and monitoring environmental, social, and governance factors in its investments align with its mission to provide strong, long-term results.

HMC's investment model

HMC's risk allocation framework expresses the portfolio in terms of exposure to betas and alphas, providing an estimate of the total risk of the portfolio. This aids conversations with the university to determine the appropriate level of risk. HMC has a long-term outlook, and its partnerships with world-class asset managers give it an edge in many facets of investment management. The company was among the earliest institutional investors in venture capital and one of the first in natural resources and emerging markets. Its partners include both early-stage and established investors, small and large institutions, with a variety of mandates across geography, sector, and strategy.

HMC directly manages about one-third of the total endowment portfolio while working closely with external companies that manage the rest. The annualized return on the endowment has been approximately 11% per year since HMC’s founding, with the endowment valued at $50.7 billion as of June 30, 2023, making it the largest academic endowment in the world.

HMC's investment partners

Harvard Management Company (HMC) is a Harvard-owned investment management company that has managed the University's endowment portfolio since 1974. HMC employs financial professionals to manage the approximately 14,000 funds that constitute the endowment. The company directly manages about one-third of the total endowment portfolio while working closely with external companies that manage the rest.

HMC has a singular mission: to produce strong investment results to support the educational and research goals of the University. To achieve this, HMC has developed and maintained partnerships with a variety of world-class asset managers for over 45 years. Their partners include both early-stage and established investors, small and large institutions, and they incorporate a wide range of mandates—geography, sector, and strategy. The common thread between them all is that they are investors, not asset gatherers, who see the world differently.

HMC was among the earliest institutional investors in venture capital, one of the first in natural resources and emerging markets, and a leading investor in some of the most successful absolute return and direct investment strategies. Their generalist investment model breaks down silos among asset classes to search the world for the most attractive risk-adjusted returns.

HMC encourages a contrarian perspective and offers deep expertise in a variety of fields to support their partners' endeavours. If you would like to join this network of more than 100 investment partners, you can contact [email protected].

Harvard's endowment distribution

Harvard's endowment is a dedicated and permanent source of funding that supports the University's mission of teaching and research. The endowment is made up of more than 14,000 individual funds, each with its own specific purpose and restrictions. The endowment's annual distributions are a critical source of funding for the University, contributing over a third of Harvard's total operating revenue in the fiscal year ending June 30, 2023.

The two largest categories of funds support faculty and students, including professorships, financial aid for undergraduates, graduate fellowships, and student life and activities. Other areas supported by the endowment include academic programs, libraries, art museums, facilities, and a wide variety of other activities.

Each year, a portion of the endowment is paid out as an annual distribution, while any excess appreciation is retained in the endowment to ensure its long-term growth and support future generations. As a result, the endowment provides a financial foundation for the University that will last for generations to come.

The annual endowment distribution is determined by considering various factors, including a payout formula that ensures a steady stream of income to support current needs while preserving the endowment's future purchasing power. Harvard targets an annual endowment payout rate of 5.0 to 5.5% of the market value, with the actual rate varying based on endowment returns.

Harvard Management Company (HMC), a nonprofit, wholly-owned subsidiary of Harvard University, has managed the University's endowment portfolio since 1974. HMC's mission is to produce strong investment results to support the educational and research goals of the University, balancing the need for current funding with the obligation to maintain the long-term value of the endowment.

Harvard's endowment fund uses

Harvard University's endowment is a dedicated and permanent source of funding that supports the University's mission of teaching and research. The endowment is made up of thousands of philanthropic gifts donated over the course of Harvard's history, many of which were given to support specific aspects of the University's work. These gifts form a permanent source of funding that enables a wide range of activities and initiatives at Harvard.

The endowment's two largest categories of funds support faculty and students, including professorships, financial aid for undergraduates, graduate fellowships, and student life and activities. The endowment also supports academic programs, libraries, art museums, facilities, and a variety of other activities. In total, the endowment's returns have enabled leading financial aid programs, groundbreaking discoveries in scientific research, and hundreds of professorships across numerous academic fields.

In addition to supporting the University's operating budget, the endowment also provides funding for purpose-driven initiatives and partnerships on campus, in the surrounding communities, and worldwide. This includes support for community programs, neighbourhood initiatives, and artistic endeavours.

The endowment is carefully managed by the Harvard Management Company (HMC), a nonprofit, wholly owned subsidiary of Harvard University. HMC has a singular mission of producing strong investment results to support the University's educational and research goals. HMC employs financial professionals to manage the thousands of individual funds that constitute the endowment, working closely with external companies to manage the full portfolio.

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