How did the endowment get there in the first place?
The endowment is as old as Harvard itself. It was born of the same father as the University. In establishing the College in Cambridge, John Harvard put up the modest sum of 800 pounds sterling or roughly $2500 to finance the first institution of higher learning in England's American colonies.
Rev. Harvard's small sum increased at a modest rate, mostly through private donations. By 1854, 218 years after the founding, the endowment broke the million mark.
When President Eliot began his term of office in 1869, the total figure was $2.5 million. At the start of the Lowell era forty years later, the endowment reached $22.5 million. As President Conant assumed office in 1933, it totalled $126 million. As Pusey was inaugurated twenty-one years ago, the figure was $360 million. By 1965, the billion dollar mark was broken.
Ascertaining exactly how much of this enormous increase was due to gifts or due to sound investment practices is hard to say; but it is safe to wager that the great part of the increase was due to capital gifts rather than capital gains.
And these gifts have posed some problems of their own aside from strict dollar value. Although the Harvard Administration would doubtless prefer that all donations be made without restriction as to their use, the donors usually feel otherwise. Because of the large number of conditions that donors put on how their money is to be used, the greatest part of Harvard's endowment, and thus the income earned on it, is restricted to special purposes.
Currently 90 per cent of Harvard's funds are restricted, and these restrictions in most cases never expire. One Thomas Cotton gave the University $156.13 in 1727, and specified that the yield on this mass of capital be used to help support Harvard's President. To this day, President Bok receives a sum of something over six dollars from this account annually.
Often the gifts Harvard receives are not in the form of cash. Many donations consist of blocks of stock, plots of land, and occasionally things more bizarre. In 1963, the University acquired a stamp collection appraised at $16,000, but on it were two conditions: that the money be used to establish a scholarship fund, and that the stamp collection not be liquidated until 2013. Harvard's Treasurer, George F. Bennett '33, keeps the collections recorded in the University ledgers at a current value of one dollar.
The conditions on some gifts verge on the absurd. In this category would go the famous donation of the mother of Harry Elkins Widener, who insisted, among other things, that all students be required to swim 50 yards before graduating from Harvard. Less well known is the case of a recent donor, a Medical School alumnus, who required that the income from his grant to the med school go to a student renowned for extracurricular activity and "medical unproductivity and scholastically idle diversion." If no student of these qualifications could be found, the money must go to the Medical student deemed least likely to succeed.
Harvard will accept almost any donation, unless the donor requires that the University forbid certain activities as a condition of the gift or unless the donor tries to impose restrictions on the use of the money that would constrain the freedom of ideas. A recent offer to endow a series of lectures against careers for women was refused on these grounds, as was a gift to the Med School for "the application of music to medical cases as a treatment."
How does Harvard decide what investments to put its endowment capital in?
Before 1920, Harvard kept almost none of its investments in common stocks, the sources of all of today's corporate responsibility issues. Prior to that, most of Harvard's money sat in bonds, mortgages, real estate and annuities.
Today, common stocks make up 63 per cent of the University's total holdings, while bonds comprise 34 per cent. (The balance consists of preferred stocks, loans and miscellaneous investments.)
Harvard's overall investment strategy is to try to maximize both capital gains, and thus growth of the endowment, and income to be used for current expenditures. Because income is arbitrarily defined as interest on bonds and dividends on stock, bonds are the stronghold of income, while common stocks provide almost all the capital gains and some of the income. Last year, bonds provided more than 50 per cent of the income even though they make up only a third of the portfolio.
Within the vast holdings of common stock, investment decisions are made according to a highly complex system which is often strikingly similar to legalized gambling. These decisions are made exclusively in the office of the investment counseling firm that manages Harvard's endowment. This firm, the State Street Research and Management Company, is headed by Treasurer George Bennett.
Bennett makes biweekly reports to the Harvard Corporation, which is charged with reviewing his decisions. He invites questions and comments on investments he has made or might make, but he then exercises his sole discresion in making individual investments.
How do social concerns enter into investment policies?
Until last Spring, the answer to this question was very simple: They don't. But since then, the Corporation's attitude has undergone some change. Prior to last Spring, the Corporation had always followed Bennett's recommendations on how to vote shares of stock at the annual shareholders' meetings of the many corporations in which Harvard invests. But as of this Fall, President Bok has set up a special Corporation subcommittee to decide on controversial shareholder resolutions, with the advice of a student-faculty-alumni Advisory Committee on Shareholder Responsibility (ACSR).
But in actuality, none of these changes has affected investment policy at all. Although Harvard has now voted against management in several shareholder resolutions, no true changes in investment -- in what stocks Harvard chooses to own in what quantities -- have been made.
Nor are they likely to be made. As outside sources of funding, such as the Federal government, continue to dry up, the financial burden that the endowment will have to bear is bound to grow. And as this burden grows, the leeway for considering any factors outside of profit maximization is shrinking. Like a high-speed racing car ignoring the pollutants with which it fouls the air, Harvard will probably continue an investment policy designed to amass capital and provide income without regard for social consequences.