How should Harvard spend its money?
This is a pretty obvious question that won't be asked enough in the months ahead, now that the world's largest university endowment is looking for another investment chief to succeed the outgoing Mohamed El-Erian.
Harvard's $35 billion endowment sparks a lot of debate. But it's usually about the making of money, not the spending of it, and that doesn't make a lot of sense.
Alumni and others fret about who will run the university's investment arm, whether it can continue to beat the market year after year and, most contentiously, how many millions of dollars Harvard's top money managers should rightfully earn.
There is a lot less talk, in public at least, about the right ways to put endowment distributions of more than a billion dollars a year to work. If you don't think this is an important question today, just wait a few years. The distribution may be closer to $2 billion by then.
At that point, should it stop charging tuition? Do things to become a better neighbor? Buy the rest of Allston?
Harvard is in an unusual, perhaps unique, position among universities when it comes to this question because it has so much more money than everyone else. Chalk that up to a long history, generous benefactors, and a stellar investment record.
Yale University, which owns the next-largest academic endowment, is a distant second. Only eight university endowments started the last fiscal year with more than $5.7 billion, the amount by which Harvard's endowment grew that year.
And the rich are almost certainly going to become richer. Apply the average annual investment return Harvard earned over the past 30 years to the decade ahead, and my compounding calculator says the endowment will grow to $133 billion. In 20 years, the same exercise comes up with an endowment of $506 billion. These are squirrelly numbers because they assume very strong investment returns while ignoring future distributions and fund-raising, but you get the idea.
The endowment's annual distribution to Harvard has tripled in the last decade. Could it triple again from here in 10 years? Maybe.
Back to the spending question: Should a school sitting on $75 billion or $100 billion in the future have any business charging students tuition at that point?
Wealthy schools have been wading slowly into this issue for a few years. Harvard eliminates tuition, room, and board for students from families earning less than $60,000 a year.
But what's the argument for charging students whose families make more when Harvard's got so much? What is the point of tuition if a school doesn't really need it? None.
And what about the university's neighbors? Harvard does contribute on this count and I'm not advocating for anything in particular. But institutions, like people, have an obligation to think about the well-being of their neighbors, and that goes double for the well-off.
Of course, there is also Harvard's big development plan in Allston. I don't know what that will eventually cost, but it shouldn't be soaking up large portions of Harvard's endowment distribution for years to come.
In truth, Harvard's endowment and the way its distributions are spent are more complicated than they appear from a distance. There isn't really one big pile of money, but a large number of smaller endowments dedicated to specific interests within the university. Some can't spend the money they are entitled to today.
But the basic story, about an incredibly wealthy school with lots of money coming in every year, remains true. Harvard's endowment debate should be about the best way to spend it.