Harvard University Case Study

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Based on the 2015 financial statements from Harvard, The Harvard University endowment is currently worth $37.6 billion. Of that $37.6 billion, Harvard only spends 5% of the endowment, which is $1.88 billion, which leaves the fund with $35.7 billion. Over the past 16 years, Harvard University has made a yearly investment return of 13%, and if the 2016 fiscal year follows this pattern, the investment could potentially grow by $4.6 billion, resulting in a total of $40.3 billion in the endowment fund. These estimates don’t even include possible university gifts. The fact that all of this money just sits in an account, with approximately 95% of it being unused, is a waste and donors could easily donate to another entity, whether schools or other …show more content…
Sharon Oster, a former dean of the Yale School of Management, has done extensive research on this subject particularly, including a lot of number crunching and data analysis of schools with large endowments. Endowment funds typically receive two types of donations, restricted and unrestricted. Restricted gifts are given to schools under the prerequisites that the money will be used in a certain manner. Unrestricted gifts are given without requirements from the donor and can be used right away or added to an endowment fund. The majority of gifts given are categorized as restricted. Oster breaks donations down even further into small, moderate, and large gifts, which are then categorized used on how they are abandoned and crowded out. When donors give small restricted gifts, the money is more likely to face moderate abandonment and moderate crowd out. This means that when small restricted gifts are given, when other gifts are given to the university, that money will most likely be left unused, because the funds were less “exciting” than the larger donations. Subsequently, small unrestricted gifts face low abandonment, but a high crowd out. These gifts are often get used immediately, but if there are other donations coming in that are larger, or given by more prestigious donors, they will often be crowded out and left to be used at a later date. Based on this research, how could it be that anybody would want to give money to a school that already has way too much money? Set aside the fact that the money would be better used elsewhere, but when donors can see data such as that produced by Oster, they still give money even though their gifts will more than likely not make a difference to a school that already has an immense amount of money. It seems apparent that these rich donors giving to rich schools are taking

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