“As a general principle, [a university’s endowment] should pay out sufficiently so that it doesn’t increase except through new gifts,” Mehrling says. He notes that donors do not give money to universities so that the university can grow its endowment, but so it can spend money on worthy causes.

Mehrling says the 5 percent standard is based on the historical average return of a portfolio between stocks and bonds. But with the endowment’s high returns in the past two decades, he says such logic is outdated.

“What is the point of letting them [make risky investments], if they don’t pay them out?” Mehrling says.

In a paper Mehrling wrote in 1999, he argued that foundations could pay out 8 percent of their endowments annually and see no decrease in their capital, and says he believes the same analysis should apply to university endowments.

Mehrling says universities will often place a nearly total focus on increasing the value of their endowment, to the detriment of payout to yearly budgets.

“What’s the point of [the effort to increase endowments] other than to say, ‘mine is bigger than yours,’” Mehrling says.

No Complaints Here

Despite the Corporation’s failure to meet the target spending rate on the endowment, there is little pressure on the Corporation from top faculty members and administrators at Harvard’s schools to increase payouts.

The tremendous growth in the endowment income in recent years has helped to diminish concerns over the spending rate among faculty.

“Many faculty would like to see a higher payout rate, but it must also be remembered that we have [seen] some substantially higher payout years recently,” Graham says.

And if faculty members do consider the matter, they rarely take the issue to the Central Administration or the Corporation, the various bodies that could change the policy.

“We know that the university is very conservative about [managing the endowment] and occasionally we ask each other questions about that,” says Gerald Gabrielse, professor of physics and chair of the department. “But on the other hand, on balance they’ve made it work quite well.”