University cites careful planning, stewardship for solid financial position, endowment performance

The University reported a budget surplus, along with robust endowment performance, and pointed to investments made throughout fiscal year 2024 in key mission-focused areas in its annual financial report released Thursday. Additionally, the report detailed philanthropic giving for the period, which continues to provide the resources to support increased financial aid and a range of academic and research priorities.

The Gazette spoke with Executive Vice President Meredith Weenick, chief financial officer and Vice President for Finance Ritu Kalra, and treasurer Timothy Barakett to learn more about how disciplined planning and sound financial management have positioned Harvard for progress in the years ahead. This interview was edited for clarity and length.

A year ago, the University had marked a full fiscal year return to post-pandemic normal operations, and we saw a corresponding operating margin that aligned with pre-pandemic performance. How would you describe the University’s financial position for fiscal year 2024, which ended with a surplus of $45.3 million?

WEENICK: Harvard continues to be in a solid financial position, grounded in thoughtful planning and careful stewardship across the University. This year’s surplus reflects the strategic decisions made by leadership across each of Harvard’s Schools. These surpluses are not merely financial metrics; they are vital sources of funds that allow us to strategically invest in educational and research initiatives aimed at tackling some of the most pressing global challenges.

KALRA: Meredith makes an important point about the nature of Harvard’s operating result. It’s an aggregate reflection of the collective results across our Schools and units. These surpluses, plural — and in some cases deficits — are earned and managed locally. That local autonomy allows deans to direct resources to the areas they identify as their highest priorities.

This year, for the second year in a row, our operating expenses grew faster than our operating revenues — 9 percent versus 6 percent. That is not a long-run sustainable path. But the analysis begs an understanding of the nuance behind the numbers. Some of what looks like growing expenses are investments strategically intended to foster future growth. This year, those investments spanned several domains, including developing our technology infrastructure and AI capabilities and renewing our campus facilities to enable types of research that were unimaginable just a decade ago.

Of course, the pace of our recent spending underscores the need for prudence going forward. While it has been purposeful in the short term, it won’t be sustainable without a commensurate growth in revenue over the long term.

BARAKETT: This long-term perspective is essential. The University has investments it must make in the near future, including, for example, increased commitments to financial aid, which are vital to making Harvard and educational opportunities accessible. We must also continue to transform how we generate and distribute energy across the campus to meet our sustainability goals and commitments. At the same time, there are new opportunities we need to be poised to drive forward. For example, the transformative potentials of AI, quantum computing, and the life sciences will be made possible by the work of Harvard researchers across disciplines. In our planning for the years ahead, we must create the financial capacity to make room for these investments.

The academic year 2023-2024 was challenging for Harvard’s community, accompanied by frequent public criticism and scrutiny. Were there any financial impacts on the University?

KALRA: Throughout the year, our most immediate focus was to ensure our students had the resources needed to support their physical and emotional well-being. Senior leaders across the University and its Schools also invested enormous time and energy in cultivating a campus environment that fosters open inquiry and responsible civil discourse as a North Star for intellectual and personal growth. Each of those investments had a financial impact, though finances weren’t the drivers of those efforts.

The impact on philanthropy is less obvious. Across the higher education landscape, neither tuition revenues nor funding for research covers the full cost of an education. At Harvard, philanthropy, in the form of gifts for current use and the investment returns spawned by endowed gifts, is essential to make up the difference.

On both fronts, we are enormously grateful. In fiscal year 2024, current-use giving reached the second-highest level in Harvard’s history, and Harvard Management Company (HMC) generated a 9.6 percent return in the endowment portfolio. The future will be more complicated — both the level of giving and the level of returns may be difficult to sustain — but we remain grateful to our donors for their steadfast belief in Harvard’s academic mission. Their support is vital to everything we do.

WEENICK: I will also add that while we faced a challenging year on and off campus, Harvard never wavered from its commitment to excellence. The arenas in which we achieved that excellence span an astoundingly broad range. Dr. Claudia Goldin received the Nobel Prize in Economics last year, and Dr. Gary Ruvkun just won the Nobel Prize in Medicine. Ten of our students were named Rhodes Scholars last year, a record for Harvard and more than double any other school. And let’s not forget that our community excels at the highest levels outside of academics as well. Our student-athletes and alumni took home a record 13 medals at the Paris Olympics.

“While HMC’s performance is best measured over the long term, the endowment’s performance in fiscal year 2024 is certainly encouraging. It shows we are on the right track.”

Timothy Barakett

How will the most recent endowment return of 9.6 percent impact distributions in a way that benefits both current and future generations of students and scholars?

KALRA: The fiscal year 2024 endowment return will provide a welcome boost to distribution growth in the short term. However, as we caution every year, it’s critical to remember that the endowment is not a $53 billion checking account.

The endowment, in reality, is 14,600 different endowments, many of which belong to a specific School or are designated for particular areas of scholarship or programs. The distribution that supports those programs is meant to grow each year to keep pace with inflation, while the endowment itself is meant to last forever. That requires us to spend responsibly from the endowment, as we have to be able to support future generations of students and scholars even if we face periods of lower growth.

Harvard targets an 8 percent return. That accounts for an approximately 5 percent distribution to the University’s annual operations and allows the value of that distribution to grow each year by 3 percent to account for inflation. Under Narv Narvekar’s leadership, HMC’s return has been 9.3 percent over the past seven years, well in excess of the target.

WEENICK: As Narv shared in his letter in the financial report, there are a variety of factors that played into this year’s return, as is the case every year. Since HMC was founded, the endowment’s 11 percent annualized return has allowed distributions to grow dramatically. These funds support critical initiatives, from financial aid and faculty support to professorships and research.

BARAKETT: Harvard derives nearly 40 percent of its annual operating revenue from the endowment, so finding the right balance between return, risk, and volatility is critical. HMC’s performance was suboptimal before Narv’s appointment, and he inherited a portfolio that was overweighted in natural resources and real estate and underweighted in private equity and hedge funds.

Over the past seven years since his arrival, HMC has been restructured, and the portfolio has been substantially repositioned. Given the scale of the endowment, this took some time, and we are now well-positioned. While HMC’s performance is best measured over the long term, the endowment’s performance in fiscal year 2024 is certainly encouraging. It shows we are on the right track.

“Our reserves have been built over years through disciplined planning and sound financial management. We need to continue to build the capacity to invest in new programs and pedagogies in order to foster the academic excellence that is both Harvard’s hallmark and its aim.”

Ritu Kalra

A challenge of recent years has been rapidly rising interest rates. Yet bonds and notes payable increased from $6.2 billion in fiscal year 2023 to $7.1 billion in fiscal year 2024. Why did the University decide to issue debt at this time?

KALRA: It’s true that interest rates are elevated relative to the decade or so following the global financial crisis. However, that is not an interest rate environment to which we are likely to return, barring an unforeseen crisis. Yet we still need to invest in our buildings and maintain our campus.

There was a window last spring when credit spreads reached historically low levels, offsetting some of the impact of the rise in rates. The rating agencies reaffirmed Harvard’s AAA credit ratings, which reflects confidence in Harvard’s stability, and we took advantage of that market opportunity to borrow at an attractive all-in cost, right around 4 percent.

A portion of our bond issuance will go toward planned future capital projects, and a portion went toward refinancing outstanding debt that carried higher interest rates. Harvard’s overall financial condition remains very strong. We have ample levels of liquidity and ready access to the capital markets for future borrowings as needed.

WEENICK: As you can see from the construction activity while walking around our campuses, whether in Cambridge, Allston, or Longwood, we have a number of long-term capital projects underway. We also have plans for facility renovations and new construction, which are essential for the University’s infrastructure and growth. For example, we are making progress in Allston with the construction of the new home for the American Repertory Theater at the David E. and Stacey L. Goel Center for Creativity & Performance, along with the first University-wide conference center in the David Rubenstein Treehouse as part of the Enterprise Research Campus. This work also includes addressing other campus maintenance priorities and refreshed lab and classroom space to ensure the resilience and accessibility of our buildings.

One of the key themes found throughout this year’s financial report is advancing the public good. How is Harvard using its resources to support teaching, learning, and research priorities aimed at making a positive impact in the world?

WEENICK: Harvard’s commitment to academic excellence is the way we advance the public good. It’s at the core of everything we do. Our students, faculty, staff, and alumni leverage their knowledge and expertise to effect positive change through research, teaching, and community leadership at a global scale. The resources we steward support these efforts.

As a research university, Harvard is a powerful engine of innovation. In fiscal year 2024, our faculty were awarded $1 billion in external grants from government and private partners. On top of that, the University invests an additional $400 to $500 million a year to support research and early stage ideas. The discoveries made here have the potential to improve lives, transform industries, and create tremendous social and economic value. Harvard’s Office of Technology and Development plays a pivotal role in facilitating the translation of these discoveries into useful products and services that benefit society.

The University also serves as an epicenter of teaching, learning, and community service through initiatives like the Harvard Ed Portal, which connects the Boston and Cambridge communities to Harvard’s educational resources. Our partnership with our Harvard Medical School affiliates also provides access to some of the world’s best health and well-being resources.

Additionally, the learning that takes place on our campus also extends beyond the boundaries of the University. For example, in the Bloomberg Harvard City Leadership Initiative, our students include mayors from around the country, who return to their communities equipped to tackle challenges that improve their residents’ quality of life.

The University brings together community members worldwide at the start of each academic year for Harvard’s Global Day of Service. These civic engagement opportunities motivate students during their time at Harvard and inspire lifelong commitments to public service.

What is the projected financial outlook for next year and beyond?

WEENICK: While our financial position remains strong, we, along with all of our colleagues in higher education, must be conscious of the challenges in our current climate. As we have cautioned before, traditional revenues in higher education are constrained, and we must be cognizant of the pressures on tuition affordability.

As we move forward, it’s clear we need to prioritize activities that most significantly contribute to our mission, and we need to work efficiently so that more resources can go directly toward teaching and research.

KALRA: Projections are dangerous in a world of persistent uncertainty. Safeguarding the University’s financial resilience is vital in such a rapidly evolving landscape. Our reserves have been built over years through disciplined planning and sound financial management. We need to continue to build the capacity to invest in new programs and pedagogies in order to foster the academic excellence that is both Harvard’s hallmark and its aim.

BARAKETT: We are grateful to our community — faculty and other academic personnel, students, staff, alumni, and donors — for their dedication to the University’s mission. Together, we have ensured that Harvard remains positioned for progress and continues to deliver on its world-changing mission.