America’s wealthiest business schools

In this Sunday, March 13, 2016, photo people walk near Memorial Church, behind, on the campus of Harvard University, in Cambridge, Mass. Amid scrutiny from Congress and campus activists, colleges across the country are under growing pressure to reveal the financial investments made using their endowments. (AP Photo/Steven Senne)

The most elusive yet revealing stat about a business school is the size of its endowment. Few schools disclose this number in any public way, though it’s fair to say that B-school deans put more focus on this one number than any other. After all, it’s the ultimate measure of a school’s true “wealth.”

And a wealthy school is more likely to attract and retain the best faculty and staff. It’s no surprise that business schools with the largest budgets devote at least half of their expenses to salaries and benefits. A wealthier school is also more likely to have better facilities, in the form of new state-of-the-art buildings or well-maintained historic buildings with the latest technology. Wealthy schools typically have more flexibility to fight for the best students in the form of scholarship money, which in turn improves the overall profile of an incoming class and ultimately the career outcomes of its graduates.

In fact, the size of a school’s endowment is far more important an indicator of a school’s power and impact than an individual ranking, location, facilities, acceptance rate, career prospects, network strength, or industry placement. Because a business school’s wealth typically comes from gifts and other donations from its alumni network, a school’s wealth is a good indication of the strength of its alumni base. So which schools lead and which institutions have some catching up to do?

THE GAP BETWEEN HARVARD & STANFORD: $2 BILLION

With painstaking research, Poets&Quants has produced the most complete and up-to-date list of business school endowments ever published, with more than 50 top schools sharing their latest data. (Only two top U.S. schools declined to provide this information: Notre Dame University’s Mendoza School of Business and the University of Pittsburgh’s Katz School). Not surprisingly, you’ll find a strong correlation between endowment and the rankings, the quality of a class profile, and career statistics. But the numbers pull back the curtain on overvalued and undervalued programs and provide a potential explanation as to why certain schools are climbing the rankings every year while others stay put or lose ground.

It won’t shock anyone to know that Harvard Business School is at the top of the endowment heap. More surprising is its lead over all its rivals. As of fiscal 2015, ended June 30th, 2015, HBS’ treasure chest totaled a whopping $3.3 billion, the size of many university and college endowments. The gap between Harvard and Stanford University’s Graduate School of Business is now $2 billion, given the GSB’s current $1.3 billion endowment. In the past four years alone, HBS has increased its endowment by 24.5%, or $658 million, from $2.7 million in fiscal 2012, when the Great Recession walloped all endowments.

After the big two, you’ll find a predictable set of schools at the top: the University of Pennsylvania’s Wharton School at $1.289 billion, Northwestern University’s Kellogg School of Management at $866.0 million, and MIT’s Sloan School of Management at $812.9 million. A big surprise is the endowment size of Yale University’s School of Management at $743.0 million, placing it sixth among the top business schools. And an equal surprise, in the other direction, might well be the University of Chicago’s Booth School of Business which has an endowment of $734.0 million.

The Chicago Booth number, however, does not include investment manager David Booth’s $300 million naming gift in 2008 which can yield more annual income than the cash thrown off by the Booth endowment. If the grant from Dimensional Fund Advisors’ Co-Founder David Booth were included, the Booth endowment could be double its actual size, putting it behind only Harvard (see table for complete list). Explains Joe Buck, associate dean for the office of advancement, “The Booth gift is not part of our endowment because there was no transfer of assets. The gift is structured so that the school receives a cash flow each year based on the stock dividends of Dimensional Fund Advisors.”

It’s also fascinating to examine U.S. business school endowments compared to the funds raised by non-U.S. schools. INSEAD has the largest endowment of any of the top European schools, but at $206.6 million the size of that fund puts the institution just above the University of Wisconsin’s Business School and just behind Cornell University’s Johnson School. London Business School’s $65.2 million endowment places the school just above the University of Arizona’s business school.

By and large, the spirit of university giving in Europe and other parts of the world lags far behind that of the U.S. At one business school after another, the endowments are significantly lower for schools that have risen to prominence in global rankings by The Financial Times and The Economist. IESE Business School in Spain has an endowment of $56 million, while IMD in Switzerland boasts just $24.6 million and ESADE in Spain of $4.7 million.

ANOTHER WAY TO LOOK AT THE DATA: ENDOWMENT PER STUDENT

While the overall size of a school’s endowment is important, the size of the institution also matters. Larger programs have larger networks but they also require higher expenses and greater investments to stay on par with smaller rivals. That’s why we are examining the numbers not merely by overall endowment but also by endowment per student. We are ranking them by endowment and by endowment per student.

Looking at the numbers per student, Harvard may still rule the roost but things get switched up fast when accounting for the size of a school’s enrollment including undergraduate, graduate and doctoral programs. Harvard has nearly $1.7 million in endowment funds for each enrollment student, compared with No. 2 Stanford which sits at $1.0 million. Yale SOM is third with $968,709 per student, while Dartmouth Tuck is fourth with $585,538 per student, and Vanderbilt University’s Owen School is fifth with $527,915 per student. The highest public university is Virginia’s Darden School which has an endowment per student of $526,291, placing it sixth overall (see table here).

HOW MUCH CASH DOES A TYPICAL ENDOWMENT THROW OFF?

How does an endowment work? It’s like a treasure chest that throws off cash each year to cover part of a school’s operating costs. No school uses its endowment as a checking account, but rather as savings that throw off some cash each year while preserving the base capital of the fund. At Harvard Business School, for example, the targeted annual payout goal is between 5% and 5.5% of the total $3.3 billion endowment. So in 2015, when the payout was 5.1% of the endowment, this treasure chest produced $127 million, accounting for 18% of the school’s total revenues. The year-over-year increase in Harvard’s endowment from $3.2 billion a year earlier reflects a 5.8% net appreciation in the endowment’s market value, the subtraction of the year’s distribution of $127 million, offset by $69 million in endowment gifts received by HBS during the year.

How much a school taps into its endowment for cash is dependent on university guidelines, the market appreciation or depreciation of the funds, as well as a school’s needs. In 2015, HBS’ endowment took a hit on the appreciation side, with the market value of the fund increasing by only 5.8%, versus the 15.4% rise of a year earlier. But the $69 million increase in endowment gifts also was just part of the $166 million in gifts and pledges to Harvard Business School last year.

Ultimately, the size of a school’s endowment amplifies its ability to carry out its mission and to enable and support growth and development for the school and its community.

Daniel J. Bonsoms, a CFA, is undecided on which MBA offer he will ultimately accept. He’s worked in private equity for the past four years and currently lives in Los Angeles.

America’s Wealthiest Business Schools

It’s no surprise that Harvard Business School tops this newest list compiled by Poets&Quants. Among the big surprises is the lead HBS now has over its rivals, Yale’s School of Management having the sixth largest endowment, as well as Babson College’s sizable treasure chest that places it ahead of such schools as Dartmouth, USC and Berkeley

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