Explaining the endowment
Liz Walat, chief financial officer, answers questions about what the University’s endowment and the School’s naming gift mean in practice.
September 12, 2024 – This month marks the 10-year anniversary of a $350 million gift from the Chan family and its Morningside Foundation to the Harvard School of Public Health. In many ways, the gift was transformative. The School was renamed to honor T.H. Chan, the father of Gerald Chan, SM ’75, SD ’79. And it moved forward in a much stronger financial position, as the entire donation went into the endowment.
Our fundraisers are sometimes asked why the School continues to seek philanthropy, given the extraordinary size of the Chan family gift—and the towering value of Harvard University’s overall endowment. We put those questions to Liz Walat, the School’s chief financial officer, who explained that endowments are often misunderstood.
Q: Let’s start with the basics— what is an endowment?
Walat: An endowment is a dedicated, permanent source of funding invested for the long term with the goal of maintaining the teaching and research mission of the University in perpetuity. I love this quote from [former Harvard President] Drew Faust: “If there are two things you should know about the endowment, it is that it is restricted, and it is forever.” The Harvard endowment has been around for nearly 400 years, and the expectation is that it will last for 400 more.
The Harvard endowment was valued at $51 billion in FY23. When people see that, many wonder why the School has any financial needs.
Certainly, it is a tremendous resource that the University is very lucky to have.
Here is what it means in practice: Each individual school at Harvard owns a piece of the endowment, based on the gifts contributed over time by each school’s donors. Thanks to the generosity of philanthropists who support public health—including, of course, the Chan family, who made the remarkable gift a decade ago—Harvard Chan School owns essentially $2 billion of the University’s endowment.
We are very fortunate to have that level of funding. At the same time, once you understand that our School owns just 4% of the University’s endowment, that changes the scope of the conversation.
Q: How does the University distribute the money to the schools each year?
Walat: If you need this financial asset to last forever, then you have to be very careful about how much you’re using each year. So the University targets a “payout rate”—a percentage of the endowment’s market value that’s distributed to the schools for spending in a given year. At Harvard, the target payout rate is 5%, although the actual rate will vary year to year based on the endowment’s performance.
Harvard Chan School’s endowment distribution in FY23 amounted to about $83 million. That accounted for 20% of our revenue.
Q: Harvard Chan School receives a smaller percentage of its operating revenue from the endowment than do other schools across the University. Why is that? What are the School’s other major sources of income?
Walat: Given our School’s focus on public health, it is no surprise that over 60% of our revenue comes from sponsored research funding. This dependence on sponsored support is unique among Harvard schools and means that, relatively speaking, we derive a lower percentage of revenue from the endowment.
That being said, the endowment plays a critical role in our financial picture and is our second largest source of income. Net tuition, which includes tuition we receive from students less financial aid applied against that tuition, rounds out our top three revenue sources.
Q: Much of the endowment is restricted. What does that mean?
Walat: This is really important. The endowment is not a checking account; you essentially have hundreds of individual funds tied to individual gifts, and donors typically put restrictions on how those gifts are used.
The Chan family gift was unrestricted, which means we can spend the fund’s annual payout on any priorities the School has identified. However, nearly 60% of our School endowments are restricted to particular purposes. For example, you may only be able to spend a fund on faculty, on research in a specific area, or on financial aid, depending on the donor’s priorities.
Q: What are the School’s biggest needs at the moment?
Walat: Financial aid continues to be one of our greatest needs. In a recent survey, nearly 85% of students who declined admission noted funding as a top decision factor. Our competitors are often state schools located in more affordable locations.
About 4% of our endowment is restricted to financial aid. We would like to grow that percentage by fundraising more money for the financial aid endowment. We’re also seeking current use gifts to support deserving students.
Another key focus is support for our faculty and their research. Endowed professorships are one way to attract and retain world-class researchers and allow them to focus on the most urgent public health priorities rather than spending time seeking grant funding.
All that said, we are grateful for all gifts, of any size. They all help us advance our mission of building a world where everyone can thrive.
Photos: School: Kent Dayton; Liz Walat: Shweta Shreyarthi