Harvard University’s Elizabeth Mora

With a $35 billion endowment to oversee, the school's CFO is in the eye of a continuous storm over how the funds should be spent.
Alan RappeportMay 1, 2008

To universities with smaller endowments, overseeing finance at the world’s richest school might seem easy. But Harvard University CFO Elizabeth Mora can tell you it is a juggling act. The 47-year-old CFO advises on a $35 billion endowment, and watches costs on everything from the school’s student-loan program to a 50-year, multi-million-dollar expansion from her office overlooking the Old Yard. Complicating matters is that everyone wants a piece of the institution’s vast resources. From the economics department’s pleas for a new building to donors’ requirements for world-class books, opinions vary on how Harvard should use its coffers. Lately, even the government is weighing in. In January, Harvard and 135 other wealthy academic institutions received letters from Congress hinting strongly that a percentage of their endowments should be used annually to lower tuition costs. At stake may be their tax-exempt status. The requirement is similar to those imposed on foundations. But as Mora points out, “We are not just like a regular foundation.” And running Harvard’s finances is far from academic. (Update: Since this interview was conducted, Harvard announced that Mora would step down from her position in mid-May after the completion of university-wide budgets for the 2008-2009 fiscal year. Dan Shore, the university’s director of budgets and financial planning, has agreed to serve as acting CFO until a replacement is named.)

Some members of Congress believe universities should spend 5 percent of their endowments to lower tuition, just like foundations. Do you agree?

No. We are not a foundation; we are an educational enterprise. Some years we have big spending needs and some years we don’t. We need to preserve the purchasing power of the endowment so that in the “need to spend” years we have the money to do it. We have an operation to run here [with] thousands of students, hundreds of buildings, millions of square feet. We are developing 200 acres of land in Allston over the next 50 years. We have to think of the endowment in terms of intergenerational equity.

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So were you surprised by the recent request from Congress for details about how you manage your endowment?

It did kind of drop out of the sky. The letter was trying to concretely link the value of the endowment to the cost of tuition. What was missing was the realization that the endowment is restricted [by donors]. But I think we saw the letter as an opportunity to educate the Senators on how the endowment works, what the restrictions mean, and why we are not just like a regular foundation that can [regularly issue] a payout.

How much of the endowment does Harvard typically spend each year?

Our target is 5.25 percent. But we are somewhat at the mercy of our returns. If the returns are strong, the fraction will come down as a percentage. If they aren’t, the fraction will go up. But that doesn’t mean the amount distributed is not large in number and fair in spirit.

The average return for endowments last year was 17 percent. Harvard’s was 23 percent. Why did yours perform so well?

We locked into a number of strategies well before the markets began to turn south: commodities is one, fixed income is another. Much of our alpha was generated through some of these longer-term strategies. We’re also able to attract top talent even though we’re not Wall Street. There’s a certain cachet to working for Harvard.

How does an organization of 125 people manage an endowment as big as the Massachusetts state budget or Montana’s GDP?

We have a strong risk-management function that monitors the market and the current portfolio allocations every day. We also have excellent people, tools, and resources at our disposal. Still, it’s hard to think of the endowment in the same way as the Massachusetts budget or Montana’s GDP, because the endowment consists of about 11,400 individual funds, 83 percent of which have donor restrictions. One example is a relatively large fund that is designated for the purchase of Finnish books. We buy a lot of Finnish books.

You are, of course, operating in a very different economy this year. How are Harvard’s finances holding up?

We have a $46 billion balance sheet, with just over $3 billion in debt. Obviously, at a time when credit is tightening, the markets are doing poorly, and donors are watching their 401(k) plans decrease in value, [we need] to be careful about our spending and the commitments that we make.… But the fact remains that we will develop [the university’s master plan] over time. Whether it’s 50 or 60 or 65 years, I don’t know.

Harvard has made significant moves on its own this year to lower tuition. What are they?

[University executives] have been working on a policy beyond the low-income initiative, where families earning less than $60,000 a year don’t pay tuition. They came up with the notion of a “middle-income initiative,” setting the household-income threshold at $180,000. The premise is that families earning between $60,000 and $180,000 will pay about 10 percent of their income. So this will cost around $20 million to $25 million, depending on who is accepted and what that student’s needs are.

How did you determine cost and who will pay?

We estimated how many families earn between $60,000 and $180,000 based on past trend data, then multiplied the number of students who will come from these families by the cost of full tuition, discounted by 90 percent. How it gets paid for is a dialogue between Harvard’s president and the dean of the Faculty of Arts and Sciences.

At the same time that it’s demanding lower tuition, the government is cutting back on federal funding. How does Harvard handle that?

It’s been a very big issue. It’s very hard to watch young scientists or even established investigators go in time after time for funding and be rejected. As President [Drew] Faust told the Senate committee, young people are not inclined to go into the sciences if the money for research is not going to be there.… Harvard is not suffering as much as many other schools, because we are able to use some of the endowment to bridge fund investigators who have been denied requests for funding. But, long term, this will be harmful to us all.