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Harvard’s Endowment Gains Nearly 12% as Funding Challenges Continue

Oct 16, 2025 13:00:00 -0400 by Abby Schultz | #Asset Allocation

In an annual report, Harvard President Alan Garber described an “extraordinarily challenging” fiscal year. (Sophie Park/Getty Images)

Key Points

Harvard University’s endowment came through a challenging year for higher education to deliver an 11.9% return for the fiscal year through June 30, up from 9.6% a year earlier, boosting its value to just under $57 billion.

Those results—which beat the 10.4% preliminary median return of peers with endowments of $1 billion or more, according to Cambridge Associates, but trail the S&P 500’s 15.2% total return for the period—bolster Harvard amid months of funding pressures imposed by the federal government.

In September, U.S. District Judge Allison Burroughs of Massachusetts agreed with Harvard that the government’s cuts to the university’s $2.2 billion in federal research funding was unconstitutional. But the university remains under pressure from President Donald Trump’s administration, which has charged Harvard with fostering antisemitism and has sought to impose more conservative values on the institution.

In its annual report, Harvard President Alan Garber described an “extraordinarily challenging” fiscal year of “political and economic disruption affecting many sectors, including higher education,” leading to a deficit of $113 million for the fiscal year on an operating revenue base of $6.7 billion.

Government pressures, which include possible restrictions on admitting international students and scholars, have led to a hiring freeze at the university in addition to layoffs, and a scaling back of capital projects and other expenditures, Garber wrote. In response, the university issued $1.2 billion in long-term debt “to bolster liquidity and to sustain essential capital investments,” Ritu Kalra, Harvard’s vice president for finance, and Timothy Barakett, treasurer, wrote in the annual report.

The university also has to figure out how to absorb an 8% excise tax (up from 1.4%) on its total net investment income imposed through tax and spending legislation passed by Congress last summer. In a Q&A with the Harvard Gazette, the official news website for Harvard University, Kalra said the tax obligation will have to be recognized on the institution’s balance sheet in fiscal year 2026, although the first payments will be made in fiscal 2027.

“While we are awaiting additional guidance from the U.S. Treasury Department, under the new law we expect Harvard’s tax obligation could be in the range of $300 million each year,” Kalra responded in the Q&A. “That means hundreds of millions of dollars that will not be available to support financial aid, research, and teaching. To put that in a bit clearer context, in fiscal year 2025 Harvard spent over $750 million in financial aid and scholarships for students across the University. Every two to three years, we could be paying the equivalent of our entire financial aid budget in taxes.”

The endowment provided 37%—or $2.5 billion—of Harvard’s annual operating revenue in the fiscal year ended June 30. That is 5% of its total market value, consistent with the university’s target.

By law, the university can’t rely on the endowment to meet all its cash needs as more than 80% of its funds are restricted by donors. Most of the remaining 18% is also restricted by donors to Harvard’s individual schools or units, with less than 5% fully unrestricted.

Another 9% of the university’s operating revenue in the fiscal year came from more than $600 million in donations made for Harvard’s “current use,” which Kalra and Barakett described as the highest total in the university’s history.

One reason the endowment’s return lagged behind the S&P 500 this year—and a 12% return for a 70/30 mix of S&P stocks and U.S. bonds—is that only 14% of its assets are allocated to public stocks. The Harvard Management Co., which runs the endowment, has “begun a measured increase in portfolio risk,” with “the guidance of the university’s leadership,” N.P. “Narv” Narvekar, HMC’s CEO wrote in the report. That’s been done through “greater equity exposure.”

In addition to public stocks, the university has 31% of assets allocated to hedge funds, 16% of which are in uncorrelated funds that Narvekar said allows Harvard to “moderate risk and provides access to liquidity across market cycles.” That flexibility has provided a “ballast” to the university as it “faced operating stressors this year,” he said.

The portfolio also has 41% of its assets in private equity—up slightly from 39% last year. According to Navekar, the portfolio produced “double-digit gains across diverse strategies and stages.”

The increase in private equity holdings also comes amid Harvard’s plans to sell $1 billion of its private equity holdings into the secondary market. In the report, Narvekar said the university has used the secondary market for private equity as a “strategic tool” for eight years.

In seeming response to crit ic ism that universities were being forced to sell their private equity holdings to generate cash, he said the secondary transactions are “not signs of constraint or liquidity concerns but rather of intentional, disciplined portfolio management.”

The Massachusetts Institute of Technology is among the largest university endowments to also have recently reported its 2025 financial results, posting a return of 11.4% for the year through June 30, up from 8.9% a year earlier. MIT’s total endowment is now nearly $27.4 billion.

Earlier this month, Stanford University reported a 14.3% return for its “merged pool” of investments for the fiscal year ended June 30. The endowment comprises $40.8 billion of the $47.7 billion investment pool, which also includes the capital reserves of Stanford Health Care and Stanford Medicine Children’s Health, and other long-term funds, the university said.

Write to Abby Schultz @ abby.schultz@barrons.com