An Unprecedented Gift for Undergraduate Financial Aid
Kenneth C. Griffin ’89, founder and chief executive officer of the Citadel LLC, a multibillion-dollar, Chicago-based hedge-fund and financial-services enterprise, has given Harvard $150 million, principally for undergraduate financial aid, the University announced today.
“Ken Griffin’s extraordinary philanthropy is opening Harvard’s gates wider to the most talented students in the world, no matter their economic circumstances,” said Harvard president Drew Gilpin Faust in acknowledging the gift, the largest in Harvard College history. Griffin himself called it
extremely important that students of all backgrounds have the opportunity to challenge themselves, learn to solve complex problems, and ultimately better our world. My goal with this gift is to help ensure that Harvard’s need-blind admission policy continues, and that our nation’s best and brightest have continued access to this outstanding institution.
Specifically, the gift:
establishes 200 Griffin Scholarships (such financial-aid endowment scholarships are now available for donations of $250,000 each; that minimum is to rise to $500,000 in the fiscal year beginning July 1), and
provides matching funds through the new Griffin Leadership Challenge Fund for Financial Aid for 600 new scholarships to encourage other donors to make commitments to the College’s financial-aid program.
Depending on the matching formula and timing of gifts, the Griffin Scholarships, other donors’ gifts (when received), and the matching funds provided by Griffin could collectively generate a significant portion of the Faculty of Arts and Sciences’ (FAS) $600-million capital-campaign goal for undergraduate aid. (The only equivalently large FAS priority is its $600-million faculty-related target for endowed chairs, graduate-student fellowships, research support, and related purposes.) In acknowledgment, the College financial-aid office will be renamed the Griffin Financial Aid Office, led by the Griffin Director of Financial Aid.
Griffin’s gift also includes $10 million to establish the Griffin professorship of business administration at Harvard Business School (from which his wife, Anne Dias Griffin, who runs a separate hedge fund, earned her M.B.A. in 1997). The new professorship, said President Faust, “reflects our shared belief in the importance of attracting both world-class students and unparalleled faculty in each of our Schools.”
The Undergraduate Financial-Aid Context
FAS dean Michael D. Smith declared himself “absolutely bowled over by the generosity of Ken Griffin and his leadership to provide a truly transformational gift” for the top College priority in the capital campaign. During an interview last autumn, before the campaign launch, he said the aid budget had “never been put on the table” in the aftermath of the 2008-2009 financial crisis—even as the faculty’s assets decreased by $5 billion and family need rose during the ensuing recession. But, as he said in a recent interview concerning Griffin’s gift, he has worried continuously about “truly making our program sustainable,” even at its current scale. In the statement announcing the gift, Smith declared that Griffin’s philanthropic leadership “has set financial aid…on a lasting foundation,” and his gift “will impact the lives of students and their families, now and for generations to come.”
Three intersecting factors explain why that is so.
Enhanced aid. This is the tenth anniversary of the Harvard Financial Aid Initiative (HFAI), announced in February 2004 by then-president Lawrence H. Summers, the beginning of a liberalized aid program (progressively expanded in subsequent years). The initiative eliminated parental contributions to the cost of educating a student enrolled in the College for families with incomes below $40,000, and lowered the cost for families with incomes up to $60,000. The zero-contribution threshold was raised to $60,000 in 2006, with the cost-reduced tier raised to $80,000. In late 2007, President Drew Faust upped the ante by:
eliminating loans (so students could graduate debt-free, enabling them to make less-constrained career choices);
cutting the parental contribution for families with incomes from $60,000 to $120,000 by limiting their cost for a child’s year at Harvard to an amount that scales up from zero to 10 percent of income;
limiting the cost to 10 percent of income for families with incomes from $120,000 to $180,000; and
eliminating home equity and retirement savings in calculating aid.
In retrospect, the timing of that considerable enrichment of aid was fateful: it came during a period of strong returns on the endowment (its value peaked at $36.9 billion as of June 30, 2008)—only to be succeeded, 10 months later by the financial-market collapse, the resulting $11-billion decline in the endowment, and ensuing budget cuts.
(As of the fall of 2012, effective for the class of 2016, the zero-contribution threshold was raised to $65,000 of family income, and the zero-to-10-percent sliding-scale formula was restructured, reducing the upper tier of eligible families to those with incomes of $150,000 or less. As FAS’s spokesman explained at the time, “These adjustments help to meet heightened demand for aid precipitated by ongoing challenges in the United States and the global economies. Demand for aid is most acute at the lower end of the economic spectrum, and Harvard modified its policy and expanded its investment to respond to this need.” On those terms, the University recently reported that more than one-quarter of the College class of 2017, a record number, are HFAI beneficiaries: among freshmen enrolling last fall, 287 are from families who pay no parental contribution, and 144 from families paying a reduced parental contribution.)
Rising need. Under the liberalized financial-aid formulas, the number of students qualifying for aid, and the size of their grants, rose. The recession put many more families’ incomes under great pressure. And of course the annual bill for tuition, room, and board increased annually—enlarging the size of the required aid package. For students entering the College in the fall of 2004, when HFAI began, the term bill was $39,880; this academic year, it is $56,407—a compound annual growth rate of about 4 percent.
The resource squeeze. According to College data, Harvard’s budget for undergraduate financial aid has increased by 88 percent since 2007, and today, 60 percent of undergraduates receive financial aid. Given the increase in spending and the decrease in the value of the endowment (and two years of resulting reduced distributions for operating expenses, the faculty’s principal source of revenue), FAS found itself in a financially uncomfortable position as it had to fund the aid budget—never “put on the table,” in Smith’s words—by drawing more on its unrestricted funds.
In fiscal year 2011, in fact, despite higher term bills, total (net) tuition and fees (after financial-aid disbursements) declined. Since tuition and fees typically represent half or more of all FAS’s unrestricted funds for the College, the graduate school, and the faculty, that obviously limited Smith’s ability to meet other costs at a time of acute financial pressure, and to invest in academic innovations, new professors’ research, and so on. (Net tuition and fees resumed growing in the two subsequent years.)
“A lot of our unrestricted money is going to” undergraduate financial aid, Smith said. “I can't think of better programs for the money to go to than that,” given the benefit to students themselves—and to their classmates and the College as a whole from having highly qualified and more economically diverse undergraduate body. But, in annual budgeting, he said, the problem of funding the aid program, and of its future, inevitably has arisen. “We’ve struggled to make that budget every year,” he said. “That’s why it’s been such a high [campaign] priority for us.”
According to FAS, approximately 50 percent of undergraduate financial aid is currently paid for by distributions from endowments earmarked for that purpose. Hence the priority given to College aid funds in the current campaign. Additional financial-aid endowment totaling $600 million would generate $30 million or more of spendable funds annually, in effect releasing an equivalent sum of unrestricted monies. (And, of course, the endowed corpus would be expected to appreciate over time, helping to defray any increased aid costs.)
Thus the faculty-wide significance of Griffin’s scholarship gift and challenge fund.
(To commemorate HFAI’s tenth anniversary—and perhaps in anticipation of this signal gift announcement—on February 7 the Harvard Gazette published this story on financial aid and some of its student beneficiaries.)
By itself, Griffin’s gift to the College may in fact be the largest single gift in Harvard history, period. It exceeds the two individual gifts of $125 million from Hansjörg Wyss, M.B.A. ’65, announced in 2008 and 2013, to support bioengineering research, and the $100-million gift made in 2008 by David Rockefeller, ’36, G ’37, LL.D. ’69, in support of undergraduate international experiences and the renovation of the Harvard Art Museum.
Smith described Griffin as an “active” supporter of FAS and the College, especially for scholarships, beginning in his tenth-reunion year, when he established a scholarship to honor his grandfather Wayne R. Gratz. He has been a participant in the alumni financial-aid committee, and “he’s been part of this conversation for a long time.” Smith said he and Griffin had discussed the need for supporting aid throughout his deanship, exploring ways to “create a foundation for this program.”
As their conversations focused on the scale and structure of the gift, Smith said, Griffin has “just been fantastic as a partner in this. I can’t thank him enough for setting an example I hope others will follow, not only for Harvard but for other institutions.”
Griffin said that his gift comes from the belief that financial aid is a “key part” of making Harvard “available and open to all.” In a brief interview with Harvard Magazine, he recalled becoming directly involved with financial-aid concerns about 15 years ago, being “in the middle of that discussion to understand what are the issues that students face in trying to go to Harvard, what are the issues that families face in trying to put their children through Harvard.
“Growing up, my parents were always very clear that they were fully committed to supporting me in going to school wherever I wanted. I don’t think they envisioned my going to Harvard and the price tag that would go with that….I was not on financial aid, but I can assure you that for my parents and for myself, the financial support of my grandmother was really important. Not everybody has that in life.”
Among the thousands of hedge-fund managers, a tiny cohort are particularly successful: able to generate large returns for their investors (and on their own invested assets) for a sustained period, in some outstanding years topping industry and popular lists with nine-figure earnings and appreciation in their personal portfolios. If they can sustain the performance, they find their way onto the Forbes and other lists of the wealthy.
In these rarefied circles, Kenneth Griffin and Citadel stand out.
First, he has been at this work, at the firm he founded, for virtually his entire career, rather than coming to it after an extended tour on Wall Street or at another firm. He began trading as an undergraduate, as The New York Times, Bloomberg, and Institutional Investor (in a December 2009 profile) have all reported. A year after graduating from the College (a year early, in 1989, with an economics concentration), he launched Citadel with $4.6 million under management. Over time, propelled by a decade of 20 percent returns in its flagship funds, Citadel reportedly grew to manage more than $20 billion at its peak, before the 2008 financial crisis.
Second, to an unusual degree, Griffin has apparently combined opportunistic, instinctive investing with highly quantitative, automated, algorithm-driven techniques. Among Citadel’s opportunistic, contrarian moves, the Bloomberg and Institutional Investor accounts list the firm’s decisions to begin a kind of trading and investing that others abandoned in the wake of the collapse of Long-Term Capital Management in 1998, to enter energy trading after Enron’s bankruptcy in late 2001, and to make big bets on natural gas after another hedge fund lost billions in 2006.
Third, Citadel has invested heavily in proprietary technology for its own investing strategies and trading operations, according to most accounts, and has regularly sought to find ways to bring functions in-house that other investors perform through Wall Street firms—and even to sell these services to other asset managers (as Institutional Investor reported). Most notably, in the wake of the financial crisis in 2008, Griffin set about trying to build a full-size, full-service investment bank to fill the gap left by the collapse of Lehman Brothers, and the absorption by other firms of Bear Stearns and Merrill Lynch. That effort was largely abandoned in 2011, and other ventures have come and gone as well. Nonetheless, Citadel Securities’ retail-execution services, by its own account, carry out nearly a quarter of retail investors’ U.S. listed-stock trades; it trades for institutional investors, as well, and is a large participant in automated, high-speed trading generally. The Citadel Technology operation similarly serves other investment-management clients.
Fourth, Griffin and Citadel have survived a financial near-death experience. When the financial crisis intensified in October 2008, Citadel’s funds were, by most accounts, both heavily invested in severely affected market sectors, and very heavily leveraged. On October 24, Wall Street was riveted (The New York Times live-blogged the event) as Citadel’s chief operating officer, Gerald Beeson, and Griffin conducted a conference call to stave off rumors that the firm was imperiled; in fact, its two principal funds were then down 35 percent, and ended the year with losses of 55 percent, The New York Times reported. After limiting investors’ redemptions and improving performance (the firm’s diversified stable of investment funds and other businesses were again producing very strong results, with the flagship hedge funds realizing returns from as much as 62 percent in 2009 to between 11 percent and 25 percent in subsequent years), by early 2012, Citadel had restored the funds’ value sufficiently that it could again collect its substantial contractual management fees.
In their personal lives, the Griffins have become notably active in two realms: as art collectors, reportedly assembling masterpieces ranging from works by Edgar Degas to Jasper Johns; and as philanthropists active particularly in their home city, Chicago. Among other engagements, Kenneth Griffin serves on the board of the Chicago Public Education Fund and as a trustee of the Art Institute of Chicago and of the Museum of Contemporary Art. Anne Dias Griffin is a trustee of the Museum of Modern Art, the Whitney Museum of American Art, and the Chicago Symphony Orchestra.
Their Kenneth and Anne Griffin Foundation has focused on education, medicine and medical research, and the arts. A notable gift in the latter area was $19 million of support to underwrite the central court of the Renzo Piano-designed modern wing of the Art Institute. The Griffin Court is a soaring space that unites the new wing’s two sides and provides central circulation for the reconfigured Institute as a whole. (Piano is also the architect for the renovation, expansion, and reconstruction of the Harvard Art Museums, incorporating the original Fogg structure, scheduled to reopen this autumn.)
At its annual dinner in March 2010, the Harvard Club of Chicago recognized Anne and Kenneth Griffin with its yearly award for Chicagoans who have rendered extraordinary service to the community outside their professional fields. (The award is not restricted to alumni, and in fact frequently honors people who are not Harvard affiliates.)
Now, with Citadel apparently on firmer footing than ever, Kenneth Griffin’s undergraduate financial-aid commitment is on a scale unprecedented in terms of his past philanthropic commitments—and for the College and University whose students he has determined to support.