[laGrenouille]

Using Harvard as an example, they had an operating expenses of $5.0 billion in 2021 [1]. In order to cover that, they would need to be having a consistent rate of return around 9% on their ($54 billion) endowment. That a fairly good estimate of the rate of return for the stock market over the past 25 years, so not unreasonable. Though, this ignores that most of the endowment consists of restricted funds that can only be used on certain ways. Also, generally you need to cut a few percentage points if you want to guard against inflation.

So yes, Harvard could cover just about all of their budget with the endowment returns, though they probably need some extra income to cover the holes formed by the restricted funds and avoid inflation pressure.

Is their current usage of the returns too conservative? Probably. Do they have an absurdly large pile of cash that they have no business holding on to? Not really; the investment returns roughly correspond with their current operating costs.

[^1] https://finance.harvard.edu/financial-overview

[tallanvor]

I was taught that you should estimate a 4% rate of return, which means Harvard's endowment can cover around 40% of their budget. Much of the remainder will come through research grants, and a rather small percentage will be tuition and fees.

[laGrenouille]

Yes, that's what I learned as well. And that's actually close to what Harvard reported using last year ($2.1 billion from the endowment; 40% of the budget).

I was only using the more aggressive number as a thought experiment to the original poster about what it would take the cover the entire operating budget.

[pastacacioepepe]

I admit I don't know about university endowments, so the question is: what are those $40+ billion dollars sitting there for every year? Does a university really need a balance that may be larger than some nation's GDP?

[gruez]

>Does a university really need a balance that may be larger than some nation's GDP?

This comparison makes no sense.

1. GDP is a per-year measure, but an endowment is accumulated over multiple years. Therefore durectly comparing them doesn't really make much sense.

2. "some nation" includes some pretty small/poor countries. Should it be a surprise that an organization in the US is bigger than a country like Liechtenstein?

[chrisseaton]

> what are those $40+ billion dollars sitting there for every year?

It’s not sitting there - it’s invested and working. Investment returns pay for operating expenses.

[DiggyJohnson]

The whole point is that you don’t draw down the endowment. It’s a long term investment.

[LudwigNagasena]

> they had an operating expenses of $5.0 billion in 2021

Isn’t that a crazy number? How much of it goes to a bloated bureaucracy?

[troupe]

You are probably under-estimating the size of Harvard. That isn't to say that large organizations tend to be ... well large organizations, but Harvard is huge.