The five largest university endowments were all larger than $20 billion and belonged to Harvard, Yale, University of Texas, Princeton and Stanford.
College endowment returns saw the highest levels in three years in 2017, rebounding to an average of 12.2% from 15.5% in 2017. According to the National Association of College and University Business Officers and asset management firm Commonfund, returns were low in 2015 at an average of 2.4%, but they dropped to -1.9% in 2016.
Endowments are permanent investments generating earnings that can be put toward spending priorities such as research, salaries or student financial aid. Most colleges and universities target long-term return rates of between 7% and 8%. These five universities enjoyed investment returns in the hundreds of millions of dollars, including Harvard’s $1.8 billion endowment distribution in 2017.
Harvard University - $39.2 Billion
Harvard University owns the largest academic endowment in the world. By comparison, Harvard’s endowment fund is almost $2 billion larger than the total market capitalization of HP Inc. (NYSE: HPQ), which the holds the top position in the PC-manufacturing sector. Harvard maintains its endowment through the use of over 13,000 separate funds, and endowment distributions for operations represented 36% of the University’s income in 2017. Harvard schools are specifically referred to for roughly 80% of endowment donations, with the Radcliffe School relying the heaviest on revenue from endowments in 2017. The two main classifications of endowment funds support facility and students through professorships, financial aid for undergraduates and fellowships for graduate students. Since 1974, Harvard’s endowment has been managed by Harvard Management Company.
Yale’s endowment earned a 12.3% investment return (net of all fees) for the year ending June 30, 2018. Spending from the endowment is the largest source of revenue for the university and is used for faculty salaries, student scholarships, and other expenses. The amount to be spent in fiscal year 2019 is expected to be $1.4 billion, which is close to 35% of the university’s net revenues. Endowment distributions have increased at 8.7% annually over the past 20 years.
Yale’s spending and investment policies provide cash flow to the operating budget. Much of the income from the funds is earmarked for certain purposes. Approximately a quarter of spending from the endowment is specified by donors to support professorships and teaching. Nearly a fifth is dedicated to scholarships, fellowships and prizes. A quarter is available for general university purposes. The remaining endowment funds are donor-designated to support specific departments or programs.
Yale's School of Law earns more than 50% of its revenue support through the endowment, and Yale’s School of Management will begin the 2017 fiscal year with $35 million from the fund. Yale’s art gallery does not impose any fees for spectators. Instead, it relies heavily on endowments and generally receives 62% of its revenue from the donation pool. Finally, 75% of Yale’s library operations are paid for by endowment distributions.
The University of Texas Board manages four major endowment funds for the University of Texas System. This system encompasses eight main academic institutions and six health institutions. The four main endowment funds are the Permanent University Fund, Permanent Health Fund, Long Term Fund and Separately Invested Fund. The Permanent University Fund supports 19 smaller institutions within the University of Texas and the Texas A&M systems and contributes financial support to approximately 180,000 students. The Permanent Health Fund contributes revenue to medical research, health education, public health, nursing and treatment programs. The UT System endowment temporarily overtook Yale as the second-highest endowment in 2015 due largely in part to favorable oil prices and hydraulic fracking operations.
Almost 80% of Princeton's scholarship funding comes from endowments. Early in 2018, Princeton trustees approved a 7.7% increase in undergraduate financial aid to $174.2 million in the University’s operating budget for the current year. Endowment funds cover well over 80% of the undergraduate aid budget. The endowment also supports graduate students and their research. All PhD students are fully funded, and master's programs are either partially or fully funded. Almost 30% percent of the latest cohort of domestic graduate students are first-generation college students or from low-income backgrounds. In addition, other areas of the university that receive endowment support include fellowships, professorships, research and teaching programs. The average annual return on the University’s endowment for the past 10 years is 8%.
Stanford University maintains over 7,000 separate endowed university funds. More than half of these are designated for a specified purpose. Annual payouts of approximately 5% of the value of the Endowment, or $1.2 billion in 2017, represent more than one-fifth of the University’s total operating revenue. Endowment payouts fund teaching, learning and research for the arts, humanities, social sciences, sciences, engineering, law, medicine, business and education. The Stanford Management Company, established in 1991, oversees the operations and maintenance of the endowment funds. Stanford’s endowment fund covers a portion of the university’s operating expenses while a portion of earnings is retained and reinvested in the endowment.