This report aims to understand the impact of recent actions and suggested policies from the current U.S. administration on endowment funds. Our analysis examines the case of the largest endowment in the United States – Harvard University.
We walk through two potential scenarios – a limited policy scenario and a full policy scenario – to explore how the research funding cuts, tax changes, and changes on the status of international students may impact the overall asset value through changes in the long-term investment strategy and payout rates.
Both scenarios show a momentous impact. By 2040, the size of the endowment will be decreased by ~30% in the limited policy scenario and by 40% in the full policy scenario, when compared to what it would have been under a going concern scenario. Furthermore, when we correct the results for inflation, it becomes clear that the Harvard endowment is slowly but steadily being depleted – all else being equal.
We suggest these results call for U.S. endowments to think through different scenarios, weighing the trade-off between investment risk, financial sustainability, and what payouts they can manage long term. If the policies suggested by the U.S. administration become reality, endowments in the United States will need to make hard decisions. The time to prepare is now.
Contact
Richard Boyce
Managing Director, North America
Stacy Howlin
Managing Director, United StatesRelated Insights
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