Harvard’s Donor Revolt Explained

Here's the real problem with the Ivy League.

By Chai Dingari, More Perfect Union

In the last two months Bill Ackman, Marc Rowan, and a few other influential financial titans have raised concerns about the discourse on campus regarding the Israel-Gaza war and some are even trying to sack Ivy League presidents to show their frustration. While it’s legitimate to have an open debate about a difficult and painful conflict (after all, that is a core purpose for a campus education), the key question is: why do certain voices have so much more power and influence over this debate than regular people? The answer: Look at who controls the university’s huge endowments.

The wealth generated by these elite colleges suggests that they primarily operate as modern-day hedge funds—with education being a secondary service. As a result, the elite schools serve as tools of class war for hedge fund billionaires.

Here are some data points that illustrate the real problem with the Ivy League: 

• In 1978, Harvard University had a $1.4 billion endowment and admitted 2,200 students to its incoming freshman class. This year the endowment sits at $50.7 billion—and they only admitted 1,942 students. That’s a 3,521% increase in the endowment and a 12% decrease in freshman admissions.

• Meanwhile, public universities have been increasing their enrollment while seeing state funding decrease. The University of California, Berkeley enrolls more low-income students than the entire Ivy League combined.

• Research by the Equality of Opportunity Project has shown that the colleges linked to the biggest upward class mobility for their graduates aren’t the ones with the most money. They’re largely public universities that have far fewer resources.

• A degree from an elite college typically has little impact on a graduate’s average income, but it does increase the chance of getting hired at a prestigious firm. So, elite colleges aren’t producing the graduates we need to build an economy that works for everyone. 

• The total sum of the Ivy League’s endowments in 2023—$184 billion—is more than twice the projected cost of making community college free for all Americans for a decade.

Keep reading below, or watch the latest video in our Class Room series:

How did we get here?

It’s only recently that university endowments exploded in size. In the 1980s, the “Yale Model” of investing became the blueprint for elite colleges. The strategy consisted of shifting their investment portfolios away from traditional stocks and bonds and towards riskier assets like hedge funds and private equity funds.

These industries were on the rise and seeking extensive sources of capital to establish themselves. Since many emerging hedge fund founders came from the Ivy League, a revolving door emerged between the two worlds.

Take Seth Klarman, who attended Harvard Business School, then helped found a hedge fund, the Baupost Group. Klarman and others from Baupost subsequently returned to Harvard in influential positions—and Harvard’s endowment invested in the Baupost Group.

We spoke to Charlie Eaton, author of Bankers in The Ivory Tower, who broke it down like this: 

“People from finance make up more than 30% of board members at elite private universities today. And that's up quite a bit from what it was in the 1980s. At the same time, those schools that have added the most private equity and hedge fund managers to their boards [...] have higher rates of return on investment, suggesting that there are these mutual benefits.”

Who’s doing something about it?

Republicans have been leading the way in criticizing the Ivy League’s growing coffers, whose assets and income are all sheltered from taxes. In 2017, Donald Trump signed into law a 1.4 percent tax on net investment income among the richest schools in America. Self-styled conservative populists like JD Vance and Tom Cotton have used culture war rhetoric about “wokeness” to advocate for endowment tax proposals of their own. 

But some Democrats are paying attention too. We spoke with Massachusetts state legislators Simon Cataldo and Pavel Payano about a bill that would levy a fine on institutions like Harvard that consider legacy status or relationships to donors in determining admissions. The fine is calculated as a percentage of the endowment and would fund community colleges in the Commonwealth. Cataldo told us, “When we talk about making community college free for everybody in the Commonwealth, we're talking about $50 to $100 million. That's less than one percent of Harvard's endowment.”

Other bills that would tax endowments directly have been introduced in Massachusetts and Connecticut. Just this week a bill unveiled in New York would cut property tax breaks for NYU and Columbia and use the recovered money to fund CUNY schools, which are some of the best public colleges in America. 

Elite influence

Back to Ackman. He passed through a similar revolving door as Klarman. A Harvard MBA, he founded Pershing Square Capital Management, one of the most successful hedge funds in the world, and also nurtured a network of ties with his alma mater via large donations. Ackman explained how he viewed this relationship:

I am extremely grateful for the education I received at Harvard College and HBS.  I am just trying to make sure that current students and those in the future have the same opportunity to learn at Harvard that I had.

I am, however, very disappointed with how Harvard mishandled a donation and the related investment, and lost out on $75m of philanthropic capital plus earnings on that capital since August of 2021.”

Ackman seems to imply that Harvard has an “obligation” to him because of his generous donations.

The endowment is supposed to be a way for Harvard to fund future generations of students in perpetuity. Legal Scholar Henry B. Hansmann says the shift to relying on an endowment based on donations like Ackman’s happened in the 1700s. It may have originally been seen as a way to free Harvard’s educational mission from religious policy pressures that came with funding from the state of Massachusetts. Hansmann writes that endowments “...served to protect these institutions from the vicissitudes of the political process. It did not, however, free them from outside influence entirely but, rather, served to shift the source of that influence.”

The latest university donor revolt over Israel-Gaza has been a massive test of that influence. 

It is not serving the public good for private universities to amass monumental tax-free endowments while restricting their educational offerings to a tiny sliver of students. Instead, we should tax these endowments and use the money to expand access to our outstanding public and community colleges. We can’t let future generations of working-class Americans depend on a country club system increasingly under the sway of the billionaires who fund their endowments.