Financials

Revenues

As outlined in the letter from the CFO, at the core of Harvard Business School’s economic model is internally funded faculty research. The resulting intellectual capital is disseminated by Executive Education and Harvard Business Publishing (HBP) to managers around the world.

Completing a self-sustaining cycle, revenues from these two groups serve as the primary source of research funding. Margins from Executive Education and HBP also provide crucial support for strategic innovation at the School, including initiatives such as the Harvard i-lab, the multiyear U.S. Competitiveness Project, and experiments in teaching and learning such as FIELD and HBX.

Philanthropic revenues, including distribution from the HBS endowment and current use gifts, are equally important to the School’s economic model. Funds from alumni giving provide additional financial stability and flexibility that are crucial to the School’s ability to execute on its mission.

The revenues from these sources in any given year are sensitive to trends in the economy and the capital markets. These trends remained favorable for a fourth consecutive year in fiscal 2014. As a result, the School’s total revenues grew by $46 million, or 8 percent, from fiscal 2013.

MBA Tuition & Fees

Tuition and fee revenue from the School’s core educational program grew to $113 million, from $107 million in fiscal 2013. First-year MBA tuition in fiscal 2014 was $56,175—which is near the midpoint among the seven comparable schools tracked by HBS—compared with $53,500 last year. MBA tuition and fees revenues do not fully recover annual MBA Program operating expenses, much less the School’s long-term investments in academic innovation. This shortfall is offset primarily with income from gifts given by MBA alumni, whose generosity enriches the HBS educational experience for future generations of students.

Executive Education

The Executive Education group delivered strong revenue growth in fiscal 2014. Although total participant enrollment was essentially flat with the prior year at nearly 10,000, tuition revenues grew 12 percent to $163 million, from $146 million in fiscal 2013. This growth was driven by additional offerings of multiweek comprehensive leadership programs during the year, higher enrollments in comprehensive and custom programs, and tuition increases.

Harvard Business Publishing

The School’s publishing business performed strongly in fiscal 2014. HBP’s total revenues grew by $14 million, or 8 percent, from fiscal 2013 to $194 million. Driven in large part by strong international demand, sales were up from fiscal 2013 across the product portfolio. Harvard Business Review (HBR) circulation revenue reached a second consecutive all-time high. Reflecting HBP’s ongoing digital transformation, eLearning product sales were up 11 percent year-over-year. Combined sales of HBS cases and reprints plus HBR revenue increased 7 percent. International revenues grew 13 percent, comprising 34 percent of total publishing revenues for the year.

Gifts & Endowment

Although income from Executive Education and HBP makes HBS less reliant on the performance of the endowment relative to other schools at Harvard, philanthropic revenues have been increasingly important to the School’s economic model in recent years. This trend continued in fiscal 2014 as revenue from gifts—in the form of the endowment distribution and current use gifts—increased to $148 million, or 23 percent of the School’s total revenues, from $139 million in fiscal 2013.

Fiscal 2014 marked the launch of The Campaign for Harvard and, as part of that effort, The Harvard Business School Campaign. The HBS community continued to demonstrate extraordinary involvement and generosity, giving a record $369 million in new gifts and pledges to the School, up 82 percent, from $203 million in fiscal 2013.

HBS received gifts from nearly 13,000 donors in fiscal 2014, including MBA, Doctoral, and Executive Education alumni, as well as friends of the School. Similar to fiscal 2013, approximately 28 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, more than doubled to $192 million, from $94 million in fiscal 2013.

Fiscal 2014 marked a second consecutive year of exceptionally strong growth in unrestricted current use giving to HBS. Revenue from these flexible gifts increased 27 percent to $28 million, from $22 million in fiscal 2013, providing critical funding for innovation across the School. Cash giving for construction projects rose to $46 million, from $17 million in fiscal 2013, and endowment giving more than doubled to $77 million, from $31 million in the prior fiscal year.

Distributions of income from the HBS endowment have comprised 20 percent of total revenues at HBS for the past several years. In fiscal 2014, the School’s endowment distribution increased 3 percent from the prior year to $120 million, growing for the third consecutive year and amounting to 19 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 payout rate for fiscal 2014 was 5.6 percent, compared with 5.2 percent for fiscal 2013.

HMC manages the University endowment with three primary objectives: growth of the portfolio, sufficient liquidity, and appropriate risk management. The investment return on the Harvard endowment for fiscal 2014 was +15.4 percent, net of all expenses and fees, compared with +11.3 percent for the prior year.

The past five years have been a period of significant recovery and repositioning for the University endowment. During this period, HMC has consistently delivered returns in excess of its Policy Portfolio benchmark, resulting in cumulative value-added above the markets of $1.9 billion, net of all costs. The University endowment’s annualized return for this five-year period was 11.6 percent, which is consistent with the long-term returns HMC has delivered over the past 10, 20, and 40 years.

The fiscal 2014 year-end market value of the HBS endowment, plus the School’s current use funds, was $3.2 billion at June 30, 2014, compared with $2.9 billion a year earlier. This increase reflected the 15.4 percent net appreciation in market value and the subtraction of the School’s annual distribution and decapitalizations, offset by the $77 million in endowment gifts received by HBS during the year.

Endowment Returns

Other Revenues

Revenue in the Housing, Rents, and Other category for fiscal 2014 increased 7 percent from the prior year to $15 million. This was due to a combination of increases in MBA application revenue, rental and event income, and initial revenues from HBX. Reflecting historically low interest rates, the School’s interest income declined to zero in fiscal 2014, from $1 million in the prior year.