Financials

Revenues

At the core of the School’s economic model is internally funded faculty research. The resulting intellectual capital is disseminated through its educational programs (including MBA, Doctoral, Executive Education, and HBX), as well as through Harvard Business Publishing (HBP) to students, academics, and managers around the world.

Completing a self-sustaining cycle, revenues—from MBA tuition, alumni gifts, and Executive Education and HBP margin contributions, and eventually including HBX as well—serve as the primary source of research funding. These funds also provide crucial support for innovation at Harvard Business School (HBS). Recent examples include the Harvard i-lab, experiments in teaching and learning such as FIELD, and HBX.

Philanthropic revenues, including distribution from the endowment and current use gifts, are equally important to the HBS 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 fifth consecutive year in fiscal 2015. As a result, the School’s total revenues* grew by $31 million, or 5 percent, from fiscal 2014.

MBA Tuition & Fees

Student tuition and fee revenue from the School’s core educational program grew to $120 million, from $113 million in fiscal 2014. First-year MBA tuition in fiscal 2015 was $58,875, compared with $56,175 last year. The School’s combined tuition and fees for fiscal 2015 were near the midpoint among the seven peer schools tracked by HBS. Tuition and fee revenues do not fully recover MBA program operating expenses at HBS, much less the School’s long-term investments in academic innovation. 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.

Executive Education

Following the opening of Tata Hall in 2014, renovating and renaming Baker Hall as Esteves Hall in fiscal 2015 completed the School’s long-term plan to add vitally needed Executive Education living space. Dining, project, and gathering space for Executive Education participants remained constrained, however, as construction of the Ruth Mulan Chu Chao Center continued. The Executive Education group successfully managed this challenge and delivered stronger-than-anticipated revenue growth for the year.

Total Executive Education program enrollment increased 6 percent from fiscal 2014 to approximately 10,600, primarily driven by the addition to the portfolio of several new focused and custom programs. Participation in these programs offset lower enrollment in the School’s comprehensive leadership and global programs. Reflecting this overall enrollment growth, as well as tuition increases, Executive Education revenue grew 3 percent in fiscal 2015 to $168 million.

Harvard Business Publishing

The School’s publishing group faced unique revenue pressures in fiscal 2015 because of a one-time accounting transition. The School adopted a new approach to revenue recognition for Harvard ManageMentor, an online learning tool for leadership skill development, as it shifts from packaged software to a subscription service model. Nonetheless, HBP’s total revenue grew by a better-than-expected $9 million, or 5 percent from fiscal 2014, to $203 million.

Harvard Business Press outperformed on the top line in fiscal 2015. Launching the new Harvard Business Review (HBR) online subscriber site generated growth in subscriptions and circulation, which enabled the group to offset pressures on advertising revenues that are affecting the entire publishing industry. As a result, HBR circulation revenue reached a third consecutive all-time high. Higher education group sales also were up, year-over-year, largely because of increased demand for cases and other offerings. Although eLearning product sales were flat with fiscal 2014 as a result of the new approach to revenue recognition for Harvard ManageMentor, combined sales of HBS cases and reprints plus Harvard Business Press revenue increased 6 percent. International revenues grew 3 percent, comprising 34 percent of total publishing revenues for the year.

Gifts & Endowment

Although income from HBP and Executive Education makes HBS less reliant on its endowment than other schools at Harvard, philanthropic revenues are crucially important to the School’s economic model. In 2015, total revenue from three sources—endowment distribution as well as unrestricted and restricted current use gifts— increased to $190 million, or 27 percent of total revenue, from $188 million in fiscal 2014. In contrast, revenue from the endowment comprised 35 percent, and annual donations for current uses comprised 10 percent of the total operating revenue for the University as a whole in fiscal 2015.

The largest of the School’s three philanthropic revenue sources is the annual endowment distribution. The School’s endowment distribution for fiscal 2015 increased 3 percent from the prior year to $127 million, amounting to 18 percent of the School’s total revenue.

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 in accordance with the donors’ intentions and the terms of each gift.

The University determines each year’s endowment payout rate—that is, the percentage of the endowment’s prior-year market value withdrawn and distributed for operations and for one-time or time-limited strategic purposes. This rate applies to HBS and the other schools at Harvard.

Consistent with the long-term goal of preserving the value of the endowment in real terms (after inflation) and generating a predictable stream of available income, the University’s targeted annual payout range is between 5.0 and 5.5 percent. The payout rate for fiscal 2015 was 5.1 percent, compared with 5.6 percent for fiscal 2014.

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. HMC’s mission in managing the University endowment is to help ensure that Harvard has the financial resources to confidently maintain and expand its preeminence in teaching, learning, and research for future generations. The investment return on the Harvard endowment for fiscal 2015 was +5.8 percent, net of all expenses and fees, compared with +15.4 percent for the prior year.

In executing on its investment mission, HMC—under the leadership of a new CEO—is pursuing three key objectives. The first is to achieve a real return on the endowment of 5 percent or more on a rolling 10-year annualized basis. Although HMC has exceeded this benchmark in eight of the past 10 years, the level of outperformance has been steadily declining. The second investment objective is to achieve aggregate outperformance of 1 percent or more over appropriate market and industry benchmarks on a rolling five-year annualized basis. The University endowment has exceeded this target in three of the past five years.

HMC’s third investment objective is to achieve top-quartile performance relative to a peer group consisting of the next 10 largest university endowments on a rolling five-year annualized basis. The performance of the Harvard endowment versus this target has been disappointing over the past five years. HMC is committed to delivering improved investment performance for Harvard University in the future.

The fiscal 2015 year-end market value of the HBS endowment, plus the School’s current use funds, was $3.3 billion at June 30, 2015, compared with $3.2 billion a year earlier. This increase reflected the 5.8 percent net appreciation in market value and the subtraction of the School’s annual distribution and decapitalizations, offset by the $69 million in endowment gifts received by HBS during the year.

HBS raises its own funds, as do other Harvard schools. Through The Harvard Business School Campaign, the HBS community continued to demonstrate extraordinary involvement and generosity, giving $166 million in new gifts and pledges to the School during the year. This compares with $369 million during fiscal 2014.

HBS received gifts from nearly 13,000 donors in fiscal 2015, including MBA, Doctoral, and Executive Education program alumni, as well as friends of the School. Approximately 26 percent of the School’s MBA alumni gave to HBS during the year, compared with 28 percent in fiscal 2014. Total cash received from gifts in fiscal 2015, including new endowment gifts and gifts for capital construction projects, payments on prior years’ pledges, and restricted and unrestricted current use giving, was $157 million, compared with $192 million in fiscal 2014.

Unrestricted current use giving to HBS increased substantially in fiscal 2015 for the third consecutive year. Revenue from these flexible gifts grew 29 percent to $36 million, from $28 million in fiscal 2014, providing critical funding for innovation across the School. Cash giving for construction projects decreased to $24 million from $46 million. Endowment giving declined to $69 million, from $77 million in the prior fiscal year, reflecting normal year-to-year variability.

Starting in fiscal 2015, HBS is reporting revenue from restricted current use gifts as a line item on its Statement of Activity and Cash Flows. This change is a result of the School’s shift to GAAP. Revenue from restricted current use gifts decreased 27 percent in fiscal 2015 to $27 million, from $37 million in the prior year, reflecting normal year-to-year variability.

Endowment Returns

Other Revenues

Revenue in the Housing Rents and Other category for fiscal 2015 increased 17 percent from the prior year to $21 million. This increase largely related to a change in the School’s method of accounting for alumni class reunion pass through revenue. The School recorded $5 million in revenue from HBX in 2015, compared with zero revenue in the program’s launch year of fiscal 2014. HBX is envisioned by the School as an initiative that, similar to Executive Education and HBP, will evolve over time into an activity that generates revenue and margin contribution. Reflecting historically low interest rates, the School’s interest income remained flat year-over-year at zero in fiscal 2015.

* In pursuit of greater comparability across the Harvard schools, the University has asked all the schools to report their net results in accordance with generally accepted accounting principles (GAAP) in the United States. In addition to results for fiscal 2015, the School’s results for fiscal years 2013 and 2014 are presented in accordance with GAAP within the Statement of Activity and Cash Flows.