Image: Maya Rucinski-Szwec
This interview was originally published in April 2024 and has been updated for 2025.
Ask anyone which university has the largest endowment in the world and most will guess correctly that the answer is Harvard. They also will likely have opinions on what Harvard could do with that money.
What people may not know is that there are restrictions on how much of these funds an institution can spend each year and what it can spend them on. Just ask Julie Joncas, chief financial officer at Harvard Medical School since 2022.
In a conversation with Harvard Medicine News, Joncas explained some misconceptions about Harvard University’s and HMS’ endowments, reasons behind the current financial strategy for drawing funds from the endowment, and what that means for the School’s research, education, and community goals.
Harvard Medicine News: What is the Harvard University endowment and how does it support Harvard Medical School?
Julie Joncas: The Harvard University endowment, which had a market value of just over $53 billion at the end of its last fiscal year in June 2024, is the sum of more than 14,000 endowment funds given to specific schools, often for specific purposes, since the University’s founding. That amount includes approximately 1,400 gifts, worth about $5.4 billion, that have been given specifically to HMS. These constitute the HMS endowment.
Most of the HMS endowment is designated for financial aid and professorships to support research and teaching.
About a third of the gifts to HMS have terms that require the money be used at one of our affiliated hospitals in a clinical setting or for a specific type of research that is done only at a hospital. In those cases, we act as stewards on behalf of our hospital affiliates.
Other gifts have unique terms such as supporting our library collections.
HMNews: What are the biggest misconceptions about the Harvard or HMS endowment?
Joncas: I read an article recently where someone was walking around the Harvard College campus commenting on aging buildings, saying, ‘Well, Harvard has the money. If they wanted to, they could afford to upgrade these facilities.’ I had to smile because that is a classic example of the public’s perception that the endowment is a checking account that can be spent at our discretion. That is not true.
People contribute to an endowment specifically so the gift lasts in perpetuity and continues to support the University and the schools long past when any of us are still here. We never actually touch the original gift. Instead, we invest it and spend only a portion of the income that is generated.
Even then, donors are often very specific about the intent of their contributions, and they put restrictions on those gifts. About 80 percent of Harvard’s endowment funds, and about 90 percent of HMS’s endowment funds are subject to donor restrictions, which means we are only allowed to spend the income according to the terms of the gift. That makes it challenging to fund something completely new because there typically isn’t an unrestricted endowment that can pay for a new technology, piece of equipment, type of research, or building that isn’t already being used to fund costs elsewhere. It is hard for leadership to pivot quickly if they want to change their strategic course because any new project requires fundraising from scratch. This is why other sources of revenue are important and why we are so grateful to the donors who support new ideas and programs that allow us to remain on the forefront of research and education.
There are so many energetic faculty, staff, and students at HMS with endless talent and wonderful ideas, and we will never be able to support all of them through our endowment. We have to be thoughtful about how we spend our resources and be responsible about the pace of spending so we don’t overspend.
It’s important to keep in mind as well that endowment income is one part of the complete picture of University and HMS income. Endowment distributions cover just over 25 percent of the HMS’s annual operating expenses. The remaining three-quarters must come from other sources, including federal and non-federal research grants, education revenue, and gifts from alumni, parents, and friends.
HMNews: How do you manage volatility in the endowment? Has it ever been an issue?
Joncas: We can learn from the recent history of Harvard endowment returns. In the early 2000s, there was an almost 20-year bull market where the overall endowment was generating more than 10 percent returns every single year. But what happens when you have an atypically long bull market like that is that people get complacent, and they forget that the reason market investments often generate higher returns is that there is high risk due to volatility. The University allowed department operating budgets to grow, expanded hiring, and started constructing new buildings.
Then a crash came in 2009. Overnight, the endowment lost almost 30 percent of its market value. Projections dropped for the income the endowment could generate. The annual costs the University had planned to pay — whether for personnel, building space, or other projects — were suddenly going to exceed its annual endowment income distribution.
This created a crisis that led to slowing down plans for renovations and new buildings, reducing staff, and other really tough management decisions to quickly reduce costs. That painful experience taught us that we never want to be in that position again. We need to be more prudent with our management of the endowment and be prepared for down years.
To do that, Harvard leaders looked at other institutions with large endowments or investment portfolios to see how they managed that volatility and to identify best practices. Then they worked with investment professionals to identify key assumptions and devise a formula that now allows us to manage risk and develop a spending plan based on the expected return. We’ve used this approach for more than a decade now, and it has allowed us to modestly grow our expenses while covering natural cost inflation.
There have been some significant ups and downs in the market over the past few years, but because we accounted for that possibility, it hasn’t had a big impact on the day-to-day operations at HMS. So, when there is a 33 percent return like in 2021, instead of giving it to everyone to spend, we put some of it away. That way, if the market falls the following year, as it did in 2022, we are covered and don’t suddenly have to pull back on spending.
HMNews: How are things looking right now?
Joncas: Unfortunately, it looks like our costs may grow faster than our endowment revenue over the next several years, even with inflation leveling off. So, we are exploring a number of ways to keep costs from increasing as much as we expect by identifying ways to use our financial, physical, and technological resources more effectively.
We are also looking at how our school’s work has changed and whether we can eliminate costs for things that are no longer relevant as priorities and technologies change. A perfect example is licenses for old, obsolete software that we are still paying for despite having acquired newer solutions. Another is landline phones on campus desks where people are now entirely or mostly remote. Now is a good time to revisit the need for these resources as the way we work is changing.
We are not stopping investments in new initiatives, but we need to be thoughtful about what is time sensitive and critical to our strategy. One example of a strategic focus for the medical school is investments in artificial intelligence, particularly around the applications of generative AI.
HMNews: Why can’t Harvard or HMS use some of the endowment to help during difficult financial times?
Joncas: Endowment gifts are intended by their donors to benefit both current and future generations of students and scholars. As a result, Harvard is obligated to preserve the purchasing power of these gifts by spending only a small fraction of their value each year. Spending significantly more than that over time, for any reason, and even if it were within the restrictions of the gifts, would privilege the present over the future in a manner inconsistent with an endowment’s fundamental purpose of maintaining intergenerational equity.
In addition to donor restrictions, the Massachusetts endowment law, which is governed by the Uniform Prudent Management of Institutional Funds Act (UPMIFA), outlines rules for managing endowment funds and limits the use of the principal of the endowment.
Harvard has gone through many financial downturns over its history, including market crashes, pandemics, and wartime depression. If, during each of these periods, leaders had spent down the endowment instead of making decisions to reduce spending and programming until income was sufficient to grow again, we would not have the resources we have today and we would not have survived the last four centuries.
Although it may seem like a simple solution during challenging financial times to look to the endowment for relief, in order for HMS to remain the number one medical school in the world for another 100 years, we need a strong financial foundation and continued fiscal discipline. It takes all of us making difficult tradeoffs now, in the best interest of the institution, to protect its future for generations to come. If people can understand and keep in mind the fundamentals of how this all works, we will succeed.
Learn more about the Harvard endowment.
This interview has been edited for length and clarity.
