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Why Harvard owns 10,000 acres of California vineyards

The beautiful California wine country of Paso Robles — and a chunk of Harvard's investment portfolio.
The beautiful California wine country of Paso Robles — and a chunk of Harvard's investment portfolio.
Libby Nelson is Vox's policy editor, leading coverage of how government action and inaction shape American life. Libby has more than a decade of policy journalism experience, including at Inside Higher Ed and Politico. She joined Vox in 2014.

Harvard University is a world-renowned university that boasts beautiful buildings, famous faculty — and a lot of California vineyard land.

Harvard's $36 billion endowment includes full ownership of a company called Brodiaea, Inc. And that company has been buying up vineyards and farmland in California's Santa Barbara and San Luis Obispo counties for the past two years. Harvard now owns more than 10,000 acres, making it one of the top 20 growers in California's Paso Robles wine region, according to Reuters.

Paso Robles is getting more attention as a wine region — Wine Enthusiast said in 2013 that it was reinventing itself "with flair" — and Harvard expects the vineyards and land it's buying to become more valuable over time. Reuters points out that the university's endowment also owns water rights to deep-water wells in the area, a big issue because of the ongoing California drought.

Investing in vineyards is attention-getting. But it's just one of many things Harvard's massive endowment, the largest in American higher education, is invested in. Here's how university endowments work and what sets Harvard's apart.

1) Endowments are the biggest revenue source for rich universities


Harvard also has an abundance of another natural resource: snow. Maddie Meyer/Getty Images

Harvard's endowment, vineyards and all, is truly massive, and growing. It's currently valued at $36 billion and grew 15.4 percent last year. At Harvard, endowment returns contribute more to the university's budget than any other source of income: more than tuition revenue, research grants, or donations meant to be spent immediately.

The money in endowments comes from donations of money (or stock or property) from alumni. If you give $25 or $50 when your alma mater calls you once a year, your donation probably goes into the annual fund — money that can be spent immediately on operating expenses. But if you want to leave a much larger amount of money in your will to set up a scholarship, for example, that could be invested in the endowment. The initial donation is invested, and donors can decide how the investment earnings on that money are spent, with some earnings put back into the fund.

Harvard's $36 billion endowment represents about 8 percent of the total wealth of all college endowments combined, according to an annual study of endowments from the National Association of College and University Business Officers and the investment firm Commonfund. Only a few other universities even come close: Yale ($24 billion), Stanford ($21 billion), and Princeton ($21 billion). Those colleges make enough money from their endowments that they could theoretically afford to make tuition free, with plenty of annual income left over.

There are about 15 other universities with endowments over $5 billion, almost all private universities with two exceptions: the University of Michigan's endowment is worth nearly $10 billion, and the University of Virginia's is worth about $5.3 billion.

2) Most universities aren't rich

Harvard again

Harvard is an outlier. (Shutterstock)

When you're paying tuition bills or student loans for tens of thousands of dollars, it's easy to assume colleges are all rolling in wealth. But most colleges depend on tuition revenue to pay professors, maintain facilities, provide financial aid, and keep their doors open.

Most college endowments are worth $500 million or less. Those colleges and universities mostly depend on tuition for their revenue. And colleges with endowments in the hundreds of millions still serve a minority of American college students. Forty percent of all college students attend to community colleges, which barely have any endowments at all.

In all, according to the most recent NACUBO-Commonfund study of college endowments, 82 universities have endowments worth more than $1 billion. (And most of those endowments are in seven figures, not eight — generally worth less than $2 billion.) Those 82 universities, mostly private research universities, own about 70 percent of all college and university endowment wealth.

3) Investing in vineyards (and timber) is pretty common for Harvard



The typical college endowment is performing pretty well: endowment returns averaged 16 percent in the 2014 fiscal year. Most retirement funds did only about half as well. That's partly because endowments — especially large endowments like Yale's and Harvard's — invest in a lot of things that the typical investor doesn't.

The biggest Ivy League endowments are so well known for this that it's known as the Harvard or Yale investment model. More than half of the typical endowment portfolio is devoted to "alternate strategies," or investments other than stocks and bonds. And bigger endowments with more alternate investments have outperformed smaller endowments with fewer of them.

Those alternate investments include private equity, hedge funds, and venture capital: the University of California is planning a $250 million venture capital fund to finance startups. At Harvard, alternate investments also include real estate and natural resources — such as the California vineyards. The university started buying forests in the US in 1997 and now owns timber forests in Brazil, Romania, Argentina, Chile, Ecuador, and Uruguay. Harvard owns a dairy farm in New Zealand with more than 7,800 cattle. The California vineyards are part of this strategy.

4) Endowment income is tax-free, and universities aren't required to spend it

chuck grassley

Iowa Sen. Chuck Grassley has criticized colleges for hoarding their endowments. (Tom Williams/CQ Roll Call via Getty Images)

Federal tax law requires most private foundations to spend at least 5 percent of their net assets each year in order to maintain their tax-exempt status, rather than simply sitting on a big pile of money that's making more money. But universities and other "public charities" — like hospitals and churches — are exempt from that rule, and the income on their investments is still exempt from the 15 percent capital gains tax. The average endowment spends about 4.4 percent of its value per year.

There have been proposals that colleges, like private foundations, should be required to spend more. Sen. Chuck Grassley, who often criticized endowments for low spending, requested information on college endowments in 2008, when he led the Senate Finance Committee, and threatened to propose legislation requiring colleges to spend more. But this was right before the financial crisis, which effectively put the issue on the back burner when college endowments started losing money rather than making it.

Still, Grassley's activism on the issue got results. Many more colleges began promising to spend more on financial aid, usually by promising to replace student loans with grants for students with financial need. Unfortunately, after the financial crisis, colleges started cutting back on these guarantees, afraid they couldn't afford to continue them.

5) College endowments are under pressure to be socially responsible

fossil fuels

Some students are pushing their universities to divest from fossil fuels. (Shutterstock)

Big endowments are closely watched by alumni, the media, and others, and running them is a high-profile job.

But colleges are also under pressure from their students to invest in a way that matches their values. Beginning in the late 1970s, student and faculty activists pushed colleges to stop investing in companies that did business in South Africa or had ties to the nation. The divestment movement, run by passionate college students building shantytowns on their campuses, wasn't treated seriously at first, but it eventually took hold. Hampshire College, in 1977, was the first to divest; more than 150 universities eventually did so, including $3 billion in University of California pension funds.

Since then, divestment campaigns have targeted other issues. A campaign against tobacco investments was successful at Harvard, Stanford, and the City University of New York in the early 1990s, although a similar effort faltered in 2014 at the University of Pennsylvania. Violence in the Darfur region of Sudan led to student activism in 2005 and at least partial divestment by prominent universities. There's also a movement calling on universities to divest from Israel.

In recent years, activists at hundreds of colleges are focusing on universities' stock in fossil fuel companies. They've had some success — Stanford has pledged stop investing directly in coal, and at least five colleges will divest entirely — but, in general, the idea hasn't caught on. Brown and Harvard, among others, have rejected divestment.

At colleges with alternate investments, like Harvard's vineyards, the issues involved can be even more sticky. A student group at Harvard has argued that its investments in timber and in developing economies in Africa are not socially responsible. And in California, some are worried that Harvard's water rights to productive deep water wells will make it more difficult for local farmers to get water in a drought-stricken region.