Experts Say Endowment Returns Are Strong, But Long-Term Success Contingent on Investment Planning


While Harvard’s endowment returns for the 2020 fiscal year were promising, experts warn that the endowment could face challenges down the line.

Harvard Management Company CEO N.P. “Narv” Narvekar announced in September that Harvard’s endowment returned 7.3 percent on its investments in 2020, totaling $41.9 billion dollars, the largest sum in its history.

Charlie Eaton, an assistant professor of sociology at the University of California Merced who researches financial inequality and higher education financial administration, wrote in an email that the strong endowment returns diverged from the ongoing pandemic-induced unemployment crisis and the “economic misfortunes of everyday people.”

“Harvard’s endowment growth parallels increasing valuations of equities like stocks despite turmoil in the broader economy, especially for low-wage workers,” Eaton wrote.


Eaton added that the strong returns could enable the University to avoid layoffs and payment cuts for its essential employees. A student activist campaign in the spring dubbed #40BillionforWhat called on the University to use endowment funds to shield employees from the consequences of the pandemic.

“The returns also give Harvard the means to continue increasing its undergraduate enrollments and enroll more low-income students,” Eaton wrote. “This is even more important as state budget cuts are decimating public universities that low-income students disproportionately rely on.”

Executive Vice President Katherine N. Lapp announced in June that Harvard would not pursue layoffs or furloughs at the time because of “uncertainty” regarding the fall semester. The University had previously floated the idea, sparking criticism from affiliates.

Despite the record-setting returns, the University still anticipates taking a financial hit from the pandemic. Harvard administrators have projected that the University will face a $750 million revenue shortfall in the coming fiscal year. In an interview with The Crimson last month, University President Lawrence S. Bacow disclosed that Harvard has incurred “tens of millions” of dollars in COVID-19 testing expenses alone.

Timothy J. Keating ‘85, the president of Keating Wealth Management, wrote in an email that the endowment’s performance was “reasonable” relative to its Ivy League competitors. However, Keating noted that the endowment’s performance over the past 5 to ten years has been “disappointing.”

Thomas D. Parker ‘64, a senior associate at the Institute for Higher Education Policy, wrote that the endowment returns were “quite good” given national norms of 2 to 3 percent returns. He added that they were “not bad” compared to other Ivy League results.

“Ranking endowment returns is like University rankings in general. They are entertaining and we all read them, but they really don't tell us much about real performance over time,” Parker wrote in an email.

Keating questioned whether active endowment management would ultimately be a positive strategy for the University, as opposed to a more “passive” investment approach.

“Over time, the real question for Harvard—and for all $1 billion+ endowments—is whether active management can add value relatively to a passively managed and appropriate benchmark (such as 60% stocks/40% bonds, for example),” Keating wrote in the email. “In that regard, the jury is still out.”

Narvekar wrote in a 2019 report that HMC was “not pleased” with the performance that year, when the endowment returned 6.5 percent. He noted at the time that the endowment was in the midst of a “significant restructuring.”

“While some changes will take years to have an impact — and we are keenly aware that we are in a marathon and not a sprint — we can already detect positive indicators of progress,” Narvekar wrote in 2019.

Parker wrote that the endowment’s restructuring plan appeared to be “on course,” but cautioned against determining “failure or success” on annual performance numbers.

He said the endowment had fulfilled its intended purpose for the year: to mitigate the impact of the pandemic on Harvard’s finances.

“The important thing is that there was enough growth to justify the temporary increases in the draw on endowment to supplement expenses in the fact of pandemic budget problems. If the substantial decline in revenues which the University is experiencing continues for too long, the drain on endowment could outpace growth,” he wrote. “So far that hasn't happened.”

—Staff writer Ellen M. Burstein can be reached at Follow her on Twitter @ellenburstein.