Harvard’s endowment, $40.9 billion as of fiscal year 2019, has become notorious for its size both on and off campus. It is common to hear sarcastic complaints about its excess and imbalance from students discussing funding allocation, and it often comes up in staff salary and benefits disputes. The endowment even catches occasional attention from public officials: Boston City Councilor Josh Zakim said during the 2016 HUDS strike, “The $35,000 annual [average] salary for these workers — that’s one one-millionth of Harvard’s endowment,” and President Trump referenced its size in a recent dispute over Harvard receiving COVID-19 assistance funds. Central to these complaints is the idea that, with billions of dollars in the endowment, it is unfair and outrageous that Harvard does not fund specific areas more.
These perceptions are also common among university divestment campaigns. Fossil Fuel Divest Harvard provides an analysis of the endowment in which they estimate that, of the 1% of the endowment publicly disclosed, “$5.6 million is invested in the fossil fuel industry.” The letter speculates that “if that 1% is a representative sample of the whole endowment, that would mean that Harvard has $560 million in fossil fuel investments,” but it is also careful to say that FFDH cannot know how representative that 1% is. The Harvard Prison Divestment Campaign’s website similarly features an animated graphic declaring that there are “$38.775 billion endowment dollars we know nothing about.”
Although they often connect to important issues, these stark arguments present an overly simplistic view of how a university endowment works.
For one, an endowment is not a general fund that Harvard can freely take money from. It is designed to be a long-term guarantee for the university via investment, with only small portions of it used to preserve its viability. The funds are run by the Harvard Management Company, a separate group created to manage the school’s financial assets. Endowment investments provide future returns for an institution to ensure it can remain fiscally solvent for generations, and market fluctuations can easily wipe out those future savings. After all, Harvard lost 30% of its endowment’s value in the 2008 recession, and the current COVID-19 recession poses similarly immense risks. To view the endowment as a purse would be immensely irresponsible and undermine the university’s stability.
Endowments are also typically a combination of recent donations and returns on past donations, meaning some of the funds are from fixed longer-term investments that are harder for the school to adjust. According to the 2019 report, around 80% of the endowment’s funds are restricted by the donors’ wishes, often earmarked for helping specific schools or other purposes. Of the 5% of the endowment spent on University operations, 70% of those funds were restricted and 30% were available for flexible spending. Even with restrictions, the endowment provided 35% of the University’s $5.2 billion operating expenses; it also provided pluralities and significant portions of many schools’ operating budgets.
It is fair to question if Harvard is spending the money it has effectively, if the growth of endowment returns is appropriately scaled to budget and funding increases, or if its investment strategies are optimal. For example, a Harvard Crimson overview of the endowment from 2016 noted that Harvard’s return trailed that of other universities, indicating that Harvard’s investments underperformed in comparison. These are some of the more precise issues at play in university funding; describing the total sum amount of the endowment is fairly meaningless on its own.
While those are more general complaints, the divestment campaigns’ protests on more specific facets of the endowment also contain misconceptions. Given the information available in the fiscal reports, it is not true that “we know nothing about” the undisclosed funds. And while the fact that Harvard does not reveal all of its investments in certain industries is technically true, the objection to it omits the context of how investing works.
Harvard, as with any group participating in an investment market, is trying to maintain a secure strategy that cannot be copied or undermined by other competitors. The university’s direct investments, about 1% of the total endowment, are publicly filed with the Securities and Exchange Commission. Beyond that, however, a degree of privacy is needed to have the freedom to execute a strategy, so it makes sense that Harvard would not disclose its entire portfolio beyond the legally required direct holdings.
Even though not all of its investments are revealed, we do know that Harvard has no direct investments in any of the companies the two groups highlight; its money is spread out into mutual funds that feature these companies as a partial beneficiary to an indirect general pool. Often these funds are general indexes meant to represent broad sectors of the economy for stock investment, rather than targeted at specific companies. Many people’s 401(k), general portfolios and retirement accounts have similar partial investments in such companies.
For example, the iShares Core S&P 500 ETF highlighted by FFDH is designed for “large-capitalization U.S. equities.” Companies connected to fossil fuels, as a large component of the U.S. economy, make up 7.14% of the fund across 54 holdings and are included among other companies like Apple, Microsoft and Visa. The iShares Core S&P Mid-Cap ETF highlighted by HPDC is similarly configured for “mid-capitalization U.S. equities” and includes private prison operators among many mid-sized IT, industrial, financial and other assorted companies (though the group also objects to the school’s investments in companies “that in some way service prisons,” such as Amazon and Bank of America). The inclusion of certain industries in these funds reflects the state of the overall economy. Harvard, rather than propping up specific companies, is broadly investing its money in a typical way for any organization.
While the divestment groups have centered their most recent efforts on the abstract idea that “investments should reflect [Harvard’s] moral and political principles,” some of the campaigns have also argued that divestment will help change larger issues beyond the school. However, there is little evidence to support this claim. Research on the divestment movements’ impact on apartheid South Africa, one of the most public such campaigns in history, concluded that it had negligible impact on share prices themselves, though it may have contributed to the greater social pressure against the regime.
Even then, stigmatization has never been a guarantee for destroying controversial industries that still have a broad market demand for their goods and services. Tobacco, perhaps one of the most scrutinized industries of all, has maintained fairly constant production levels and increased revenues despite similar campaigns and governmental taxes. Harvard even divested from the industry in 1990, but it appears to have had little effect.
In both allocation-based and moral critiques of Harvard’s financial practices, the intense focus on the endowment itself is misplaced when there are alternatives that are less easy to sloganeer but more effective in practice. For those wanting to improve Harvard’s underfunded areas, it is better to look at what the university is funding already and assess the trade-offs. To name one example, does Harvard benefit from funding the most varsity sports of any Division I school, compared to prioritizing the needs of its workers or its less wealthy students? Questionable spending practices on certain amenities, administrative positions or other existing projects are much more tangible and consequential concerns when it comes to Harvard’s financials.
Likewise for the divestment campaigns, it makes more sense to focus on changing or challenging Harvard’s direct links with their targeted industries as well as ingraining activists in local networks. Much of this the divestment campaigns already do. FFDH has pressed against Harvard board members’ ties with the energy industry and its direct funding of university research. HPDC has coordinated with prison suffrage campaigns. Harvard Out of Occupied Palestine has challenged Israeli speakers and hosted striking public displays. If the campaigns want to focus on impacting the Harvard community as they describe in the “vision” of their coalition letter, it makes more sense to prioritize such direct efforts within the university community rather than aiming for a distant shift in investments that may not carry any substantial change.
This is not to automatically endorse every such effort on campus, as they can be judged on their own merits and prudence — but such attempts would undoubtedly have a more tangible impact on the university and the student body. The endowment is much less of an issue than it carries in popular imagination, and a shift in focus would better actualize any changes student activists want.
Image Credit: “Harvard fossil fuel divestment petition” by victorgrigas is licensed under CC BY-SA 3.0