Harvard has a $53 billion endowment. Will that be enough to withstand Trump's assault?
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It all amounts to an unprecedented financial challenge for the Cambridge university, one that experts say could change the calculus around the endowment and other financial resources, which — vast, though they may be — can only go so far.
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Harvard is already beginning to make minor cuts, reducing library staff through the summer,
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Financial analysts have long said that Ivy League universities — Harvard included — invest too much of their endowments in assets that take years to grow and cannot easily be cashed out, leading to issues with liquidity as their finances are squeezed.
Roughly 80 percent of Harvard's endowment is restricted by donors for specific purposes, such as scholarships or named teaching positions. And typically, Harvard has put most of its money in decade-long investments that
can bring higher returns, safe in the assurance that it had enough to get by day-to-day. That status quo has vanished, said Jim Russo, an executive director at TIFF Investment Management, which partners with several smaller endowment funds.
Harvard University president Alan Garber at last year's Commencement.
Craig F. Walker/Globe Staff
'What we've just had is a massive change in the assumptions as to what Harvard is going to need from the endowment versus what they might have expected in the past,' Russo said. 'They may be thinking now, what can we do now to make the numbers match?'
The university and the Harvard Management Company declined to comment for this story, but they have already made notable moves.
In April, Harvard
it has explored selling roughly $1 billion in private equity assets, which it could then use more freely. University officials also created a
to pay faculty, keep labs open, and defend its position on the world stage against what it sees as an
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Access to cash is not something the Harvard Management Company has much worried about of late. Investing endowment funds in a wide basket of assets proven successful since the strategy was created by David Swenson at Yale in the 1980s, and Harvard's endowment typically garners positive returns, even when it trails the performance of the stock market. In total, the fund has grown ten-fold since 1990, when the pot sat at $4.8 billion.
Despite the
endowment's dramatic growth, Harvard rarely pulls out more than 5 percent of returns each year
for operations to ensure that the pool of money always expands. Only in the lean aftermath of the 2008 recession did Harvard withdraw beyond that mark — 6.1 percent — though it dropped back down the next year.
Growing the endowment is essential to keep up with rising wages, new improvements, and a campus that is 'unusually expensive to maintain,' said Charles Skorina, owner and namesake of a company that recruits chief investment officers for endowments.
'Ivy League universities were not built in the day when you had to worry about maintenance costs because labor was so cheap 100 years ago,' he said. 'The upkeep on campuses is extraordinary.'
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The endowment itself is comprised of around 14,000 different funds, many of which are philanthropic. Since 2014, donations to the endowment have ranged from $338 to $646 million annually, at least some of which come from overseas. Harvard
Yet in the last decade, the endowment has become simpler and leaner. Since taking the helm of the Harvard Management Company in 2016, chief executive Narv Narvekar has reduced the number of investments within the fund and outsourced management of a majority of the endowment to around 100 external partners, rather than by people employed directly by Harvard.
An entrance to Harvard Yard.
John Tlumacki/Globe Staff
Narvekar and his dozen-member board have also reduced investments in real estate and natural resources, favoring instead hedge funds, venture capital, and private equity, or capital invested in companies that are not publicly traded. Between 2016 and 2024, the percentage of the endowment invested in private equity nearly doubled from 20 to 39 percent.
In the S&P's credit opinion affirming Harvard's AAA rating in February, the financial data company said the breakdown of assets is 'appropriate for Harvard's endowment size and for the expertise' of its financial managers.
But not everyone is so sure, since the private equity investments tend to be less liquid than stocks.
Howard Bunsis, an Eastern Michigan University professor who audits universities' finances, wrote in a recent analysis that Harvard is 'investing in securities that are very difficult to convert to cash' and that are 'not performing as well as the market.'
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'They cannot be crying about liquidity when they are the ones who chose not to be liquid,' Bunsis said. 'They may revisit these choices now.'
Private equity has already seen lower returns in recent years due to higher interest rates and a slowdown in acquisitions. Many of Harvard's public equities investments are in funds that are not easily cashed out, too. And taken together, Harvard's illiquid exposures and unfunded commitments are 79 percent of the endowment's total value, according to a report by the investment management analysis firm Markov Processes.
'This moment is a stress test on Harvard's liquidity,' said chief executive Michael Markov.
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It's a matter now of where the financial pain will be felt most.
Before Trump took office, Harvard announced it would
And not all colleges within Harvard rely on endowment funds equally: The schools of public health, medicine, and engineering depend on sponsored support, including government research grants, over endowment funds, but that breakdown could be
poised to change. Others, such as the Graduate School of Design and Harvard Law School, mostly lean on education revenue such as tuition
and may be better positioned than the Radcliffe Institute or Divinity School, for example, which rely on the endowment for more than 70 percent of its annual revenue.
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Should Harvard administrators choose to tap their endowment extensively this year, it could have consequences down the line, shrinking the size of the fund over time and weakening its position against threats to come, said Larry Ladd, a former budget officer at Harvard and now a financing expert at the Association of Governing Boards of Universities and Colleges.
'It's a trade off,' he added, 'between the present and the future.'
Diti Kohli can be reached at
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