The MIT endowment is the bedrock of the Institute’s finances, made possible by gifts from alumni and friends for more than a century. Despite what its name might suggest, the endowment is not one fund but a collection of approximately 4,500 funds established by MIT’s donors.
When donors make a gift to MIT designated as endowment, we can’t spend the principal – only the income and any gains from investing it. Further, most of the funds are restricted and must be used for the specific purpose designated by the donor. A much smaller portion of the endowment is unrestricted, meaning that we can use the returns these funds generate for purposes that we decide.
At the close of the 2023 fiscal year, the MIT endowment was valued at $23.5 billion.
The MIT Investment Management Company (MITIMCo), a professionally staffed investment organization, oversees the investment of our endowment and working capital to generate returns to support our operations.
Virtually all of MIT’s endowment is held in a unitized investment pool we call Pool A. It’s like a mutual fund in which a school, a department, the central budget, or a fund established for a particular purpose owns shares, called “units,” which are re-valued every month based on investment performance.
The Institute’s spending policy is based on the concept of “intergenerational neutrality.” Every fall MIT determines, by a vote of the Executive Committee – a subset of the MIT Corporation – the portion of the returns we will distribute to help fund our operations during the next fiscal year. Believing that the MIT mission will be as important and relevant 100 years from now as it is today, we seek a spending policy that will offer the same support to today’s scholars and future generations. We conserve some, knowing we need larger dollar returns in the future to maintain the endowment’s purchasing power. We also seek to provide relatively stable support for our operations from our endowment returns, as opposed to simply mirroring performance of the endowment’s investments (which may reflect the volatility of financial markets).
To determine endowment payout, we generally use a formula called the Tobin Rule, an objective formula that is also used by many of our peers. Named after Yale economist James Tobin (1918-2002), the Tobin helps us balance maintaining intergenerational equity and providing relatively stable support for our operations.
Investment income and gifts comprise about half of MIT’s campus annual operating revenues. This includes amounts we spend from returns on our endowment and on other investments, plus gifts and pledge payments for current use. The second largest component is sponsored support: revenue paying for the direct costs of, and overhead associated with, campus-based organized research activity and other sponsored activities. The third largest component is degree program tuition net of financial aid, and non-degree program tuition for Executive Education, professional education, and online courses.
The most important thing to understand about MIT's operating revenue is that we must spend it consistently with any conditions set by its sources. 46% of our campus revenues in fiscal year 2023 were unrestricted – meaning, the source did not restrict its use; we can spend it for any purpose consistent with MIT’s overall mission. Through the budget process each year, we allocate these funds to units throughout MIT so they can execute their responsibilities, and we also use them to fund other core needs like paying debt service.
The remainder of our operating revenue is designated for particular purposes. 19% is sponsored support grant funding for the direct pursuit of organized research and other sponsored activity.
37% is income related to philanthropy given to us for specific purposes or to specific schools or departments. This includes income from the investment of gifts given to us as endowment, and current use gifts, that are so designated. As a whole, these resources pay certain faculty salaries, contribute towards financial aid and other graduate student support, support research, and provide discretionary funding to schools, departments and faculty.
The endowment is not like a checking account or even a “rainy day fund.” Amounts provided as endowment are intended to be invested for the long term to provide recurring income for the Institute’s operations, not liquidated. Additionally, most of that income is restricted to supporting specific purposes – professorships, scholarships, fellowships, research, flexible uses by a particular school or department, and other prescribed purposes.
The general Institute budget, or the "GIB,” is the central focus of the annual budget process. The GIB allocates unrestricted revenues to MIT’s units to help them execute their responsibilities and also funds other central Institute obligations like debt service. Decisions on annual endowment payout and the tuition rate – as approved by MIT’s Executive Committee – determine available revenues. Annual budget submissions from units describe their need for unrestricted resources and also forecast how they intend to use restricted sources of funding. Following budget meetings in December and January, units are typically provided with the amount of their unrestricted revenue allocations for the forthcoming fiscal year in February. The Executive Committee approves the Institute’s entire budget, which includes forecasted expenditures of both unrestricted and restricted resources, by early May. The new fiscal year governed by that budget begins on July 1.
MIT publishes its audited financial statements every year in a publication called the Report of the Treasurer.
An external auditor audits our financial statements, which are compiled in accordance with generally accepted accounting principles (or GAAP), specifically as interpreted for non-profit enterprises.
The report is published on the website of the MIT Office of the Vice President for Finance. It includes an introductory letter from the Treasurer, our annual consolidated Statement of Activities, Statements of Financial Position and Statements of Cash Flows, footnotes to these statements, and tables highlighting recent trends in our finances.
The Consolidated Statement of Activities, or P&L statement, reflects how MIT generated and deployed resources to support its operations over the course of the most recently completed fiscal year. It also highlights all the factors that contributed to changes in the Institute’s net assets over the course of that fiscal year, including investment returns.
The Consolidated Statements of Financial Position, or balance sheet statement, provides a picture of MIT’s assets and liabilities as of the end of a fiscal year.
The Consolidated Statement of Cash Flows breaks out cash activities across broad categories of activities – operating, investing, and financing – based on GAAP rules.