A group of Harvard alumni proposed a solution for how the university’s endowment can pay for a new tax on investment income and boost returns: don’t think so much.
Harvard should use the savings from shifting half of its $37.1 billion endowment into low-cost funds tracking the S&P 500 to cover the cost of a new tax that some of the wealthiest schools will face, the group said Thursday in a letter to incoming President Lawrence Bacow.
The 11 alumni from the Class of 1969, who have criticized compensation at the endowment, said the S&P 500 has produced better returns than Harvard for a decade. The group includes historian David Kaiser; Barbara Foley, an English professor at Rutgers University in Newark, New Jersey; and Paula Caplan, an associate at Harvard’s Dubois Research Institute.
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Harvard’s endowment would have grown more rapidly if the entire portfolio was invested in the S&P 500, reaching more than $90 billion last year, excluding any expenses incurred by the fund, the group said.
In fiscal 2017, the fund gained 8.1 percent, lagging behind peers. It gained an annualized 4.4 percent in the past 10 years through June 30, trailing the S&P benchmark’s 7.2 percent.
“Our proposal reflects Warren Buffett’s widely publicized argument that wealthy individuals and institutions would have been much better advised, beginning in 2008, to have put their money in the S&P 500 index than to entrust it to hedge fund managers,” the alumni wrote.
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Harvard estimated that the new 1.4 percent tax would have cost the endowment $43 million last year. Drew Faust, who’s stepping down as university president in June, has warned that the tax hit may erode support for financial aid and academic research.
A spokesman for Harvard had no immediate comment. A spokesman for Harvard Management Co., which oversees the endowment, didn’t immediately reply to a request for comment.