Thousands and thousands of philanthropic donations — mostly from wealthy alumni — have turned Harvard university's endowment fund into a truly enormous investment vehicle, which this week passed $50bn in value for the first time ever.
The majority of the $11bn+ gain in the endowment's value was down to a 34% return on the fund's investments, helped along by the bull market in public equities, private equities, real estate values... and pretty much everything else you could feasibly invest in.
The crimson economy
Every year Harvard taps the endowment to help pay for the university's operating expenses, usually around 5% of the fund's value in the previous year.
In the most recent year that translated into a check for about $2bn, which is almost 40% of Harvard’s annual operating expenses — or equivalent to completely paying for Harvard's biggest expense — salaries and wages.
Although its endowment fund is the biggest, Harvard isn't the only university with a huge pile of cash. All the universities you might suspect — like Yale, Stanford, Princeton, MIT and others — have multi-billion-dollar endowments, as do other elite universities around the world.
For those institutions they've found themselves in a virtuous circle: offer an elite education or brand > produce / attract wealthy alumni who donate > offer an even more elite education. For poorer institutions, it's a lot harder to compete if most of your income is just from students. Harvard's share of its income from students? Just 17%.
