Underpinning teaching and research at Harvard Business School is a nearly $600 million enterprise, driven by an economic model that is unique among Harvard University schools and in higher education. The core of the model is internally funded research. HBS supports the work of the faculty, who are then free to pursue the questions and opportunities they believe have the greatest potential to generate new knowledge, without the constraints associated with funding from external organizations.

When transformed by the faculty into HBS cases, this new knowledge sparks the dynamism and focus on cutting-edge business issues that has long distinguished the classroom experience at the School. At the same time, the intellectual capital created by the faculty is disseminated by Harvard Business Publishing (HBP) in corporate and higher education markets around the world. Margin contributions from HBP and Executive Education, the School’s competitive business units, complete the self-sustaining cycle by serving as the primary sources of funding for the faculty’s research.

Income from HBP and Executive Education makes HBS less reliant on its endowment than other schools at Harvard. However, alumni generosity has become increasingly important to the School’s economic model in recent years. Endowment gifts, as well as unrestricted current use giving, provide additional financial stability and flexibility that are crucial to the School’s ability to execute on its mission.

The revenues generated by HBP and Executive Education in any given year are sensitive to trends in the economy and the capital markets, as are income from the endowment and alumni current use giving to the School. These trends remained favorable for a third consecutive year in fiscal 2013.

The School’s total revenues for fiscal 2013 grew by $41 million, or 8 percent, from fiscal 2012. The portion of this growth attributable to HBP and Executive Education was $19 million, as combined revenues from both groups rose 6 percent from the prior year to $326 million. HBP and Executive Education together generated nearly 56 percent of the School’s total revenues—the same percentage as in fiscal 2012.

MBA Tuition & Fees

HBS sets MBA tuition and fees at levels that do not fully recover annual operating expenses, much less the School’s long-term investments in enhancements to the MBA program. The shortfall is offset primarily with income from gifts given by alumni and friends of the School, whose generosity enriches the HBS educational experience for future generations of students. First-year MBA tuition in fiscal 2013 was $53,500—near the midpoint among the seven comparable schools tracked by HBS—compared to $51,200 last year. Tuition and fee revenue from the School’s core academic program grew to $107 million, from $99 million in fiscal 2012, reflecting a modest increase in MBA enrollment.

Executive Education

Demand for open enrollment and custom programs—particularly those offered outside the United States— remained strong in fiscal 2013. However, the Executive Education group’s top-line growth was limited by ongoing constraints on participant housing. Total participant enrollment in fiscal 2013 was essentially flat with the prior year at 10,000. Reflecting a favorable pricing environment, tuition revenue grew 3 percent to $146 million, from $142 million in fiscal 2012.

Harvard Business Publishing

The School’s publishing business continued to grow in a fast-changing and competitive environment in fiscal 2013. Harvard Business Review circulation revenue reached an all-time high. Sales of HBS cases and HBS Press revenue both were up substantially year-over-year, driven by double-digit growth internationally. In addition, reflecting the publishing industry’s ongoing shift from paper to online media, eLearning product sales eclipsed those of HBR for the first time. As a result, HBP’s total revenue grew by $15 million from fiscal 2012, or 9 percent, to $180 million.

Gifts & Endowment

Gifts to HBS have been playing an increasingly important role in supporting the School’s operations for more than a decade. This trend continued in fiscal 2013 as revenue from gifts—in the form of the endowment distribution and gifts for current use—increased to $139 million, or 24 percent of total revenues, from $128 million, or 23 percent of total revenues, in fiscal 2012.

Like other Harvard schools, HBS raises its own funds, and fiscal 2013 fundraising results exceeded the School’s internal forecast. Continuing to demonstrate extraordinary involvement and generosity, the HBS community gave a record $203 million in new gifts and pledges to the School, up 57 percent, from $129 million in fiscal 2012.

Fiscal 2013 was an exceptionally strong year for unrestricted current use giving to HBS. Revenue from these flexible gifts increased 16 percent to $22 million, from $19 million in fiscal 2012, providing critical funding for innovation across the School. Cash giving for construction projects grew to $17 million from $5 million, and endowment giving rose 35 percent to $31 million.

HBS received gifts from more than 12,900 donors in fiscal 2013, including MBA, Doctoral, and Executive Education alumni, as well as friends of the School. As in fiscal 2012, approximately 27 percent of the School’s MBA alumni gave to HBS during the year. Total cash received from gifts, including new endowment gifts and gifts for capital construction projects, payments on prior years’ pledges, and restricted and unrestricted current use giving, increased 38 percent to $94 million, from $68 million in fiscal 2012.

Distributions of income from the HBS endowment have ranged between 20 and 24 percent of total revenues at HBS for the past several years. The School’s endowment distribution revenue grew for the second consecutive year in fiscal 2013, and amounted to 20 percent of total revenues.

The HBS endowment currently consists of more than 1,000 discrete funds established over the years by individual donors, corporations, and reunion classes. The School budgets the use of endowment distributions to support operations according to the terms of each gift. Funds within the HBS endowment, along with those of the other Harvard schools, are managed by Harvard Management Company (HMC), a subsidiary governed and wholly owned by the University.

The University determines the payout rate—that is, the percentage of the endowment withdrawn in any given year and distributed for operations and for strategic purposes. Consistent with the long-term goal of balancing the maintenance of the endowment’s purchasing power for future generations and the desire to pursue nearer-term opportunities, the University’s targeted annual payout range is between 5.0 and 5.5 percent.

The University’s payout rate for fiscal 2013 was 5.2 percent, compared to 5.5 percent for fiscal 2012. HBS continued its efforts to maximize the use of investment income from existing endowment funds, while receiving a number of new endowment gifts. As a result, the School’s fiscal 2013 endowment distribution increased 7 percent from the prior year to $117 million.

In an effort to achieve strong, sustainable long-term investment returns, HMC manages the University endowment with three primary objectives: growth, sufficient liquidity, and appropriate risk management. The absolute return on the Harvard endowment for fiscal 2013 was +11.3 percent, net of all expenses and fees, compared to an essentially flat performance for the prior year. Fiscal 2013 marked the fourth consecutive year in which the return on the University’s investments exceeded HMC’s Policy Portfolio benchmark. Over the past three years the average annual return on the Harvard endowment has been 10.5 percent, compared to 9.1 percent for the Policy Portfolio. Longer term, the University endowment has returned 9.4 percent annually over the past 10 years and 12 percent over the past 20 years.

The fiscal 2013 year-end market value of the HBS endowment, plus the School’s current use funds, was $2.9 billion at June 30, 2013, compared to $2.7 billion a year earlier. This increase reflected the 11.3 percent net appreciation in market value and the subtraction of the School’s annual distribution and decapitalizations, offset by the $31 million in endowment gifts received by HBS during the year.

Endowment Returns

Harvard Endowment
FY 13 11.3 %
FY 12 - 0.1 %
FY 11 21.4
FY 10 11.0
FY 09 - 27.3
FY 08 8.6
FY 07 23.0
FY 06 16.7
FY 05 19.2
FY 04 21.1
3-Year Growth 10.9 %
10-Year Growth 10.5 %

Other Revenues

Revenue in the Housing, Rents, and Other category for fiscal 2013 increased 27 percent from the prior year to $14 million. This was due to a combination of increases in MBA application revenue, rental and event income, and nondegree program revenue. Reflecting continued overall stability in interest rates during the year, the School’s fiscal 2013 interest income was flat with the prior year at $1 million.

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Revenues: Publishing 30%. Executive Ed Tuition 26%. Endowment Distribution & current Use Gifts: 24%. MBA Tuition & Fees: 18%. Housing, Rents, Other 2%. Revenues (in millions): FY09 472. FY10 467. FY11 509. FY12 546. FY13 587. Cash Received from Gifts (in millions): FY09 37. FY10 59. FY11 89. FY12 68. FY13 94. Endowment Distribution (in millions): FY09 113. FY10 101. FY11 100. FY12 109. FY13 117. Endowment Growth (in billions) FY09 2.1. FY10 2.3. FY11 2.8. FY12 2.7. FY13 2.9.