THE MORNING RANT: The Ivy League Endowments’ Liquidity Crisis May Be Worsening

“Harvard’s Endowment Is Having a Cash Crunch” [Buck Throckmorton – 3/08/2024]

But Harvard is sitting on a $50 billion endowment. How much could it hurt Harvard to lose an incremental billon or two? The answer is, it could hurt a lot. It did hurt Harvard immensely.

While the endowment may be valued at $50 billion, it is apparently not weighted very heavily toward liquid investments such as stocks and bonds. Therefore, Harvard relies on the mega-donors’ recurring giving to provide the cash to pay the bills. When those donors closed their checkbooks, Harvard found itself in an asset-rich but cash-poor situation.

So, despite its massive endowment, Harvard finds itself having to rush a bond offering in order to raise the cash needed to keep the lights on.

It was announced in February that Harvard University was floating a $1.65 billion bond offering, choosing to take on over a billion dollars of debt to maintain the cash liquidity it needs to operate the university, since not enough fresh cash is flowing in. The intention was to raise $750 million with a taxable bond sale through Goldman Sachs, and another $900 million of tax-exempt bonds to be issued by the state of Massachusetts.

In March, Harvard successfully raised the $750 million on Wall Street, and it received authorization from the state of Massachusetts to raise up to another $2 billion in state tax-exempt bonds

There was not an investor appetite, however, for anywhere near that amount of Harvard debt. Ira Stoll wrote last week that only $735 million could be raised in the state bond sale, bringing the all-in amount raised to about $1.48 billion. Harvard fell $165 million short in its effort to borrow the cash it needs.

Yet the investor appetite for Massachusetts tax-exempt bonds backed by Harvard apparently turns out to be on the low side of what Harvard was aiming for, at least at the non-distressed or non-“junk” yields that Harvard is offering to pay lenders. A document posted with no fanfare on Harvard’s bondholder information website this week after I inquired with the Massachusetts Development Finance Agency about the fate of the bond offering lists the amount of the offering as $734,995,000. That’s a mere 36.7 percent of the $2 billion that the state approved, and it falls more than $165 million short of the $900 million number touted in the regulatory filing and the alumni magazine article.

Much of Harvard’s newly raised cash is being borrowed simply to pay off maturing bond debt issued at lower interest rates, as well as rolling over other short-term debt.

Even the $734,995,000 sum overstates the amount of new money available to Harvard as a result of the bond offering. Of that, $356 million is being used to buy other Harvard bonds that were issued in 2016. An undisclosed additional amount is also being used to refinance commercial paper—short-term debt. There’s also a $120 million “premium.”

Not that I’m questioning the legitimacy of Harvard’s illiquid investments or the integrity of those managing it, but one might wonder about the “investment strategy” of Harvard’s famous endowment if it is so illiquid that even with several years lead time to prepare for bond maturity, its other investment assets cannot get converted to cash to pay off maturing bonds. With my own finances, I would not consider any of my cash that is “invested” and then becomes permanently unrecoverable to actually be an investment.

Charles Gasparino is reporting that word on Wall Street is that the liquidity crunch at Harvard and other Poison Ivies is getting quite serious.

We are winning major battles against woke with our dollars. Be it Bud Light, Target, or Harvard, our cultural enemies forgot that they still need our dollars.

In the case of the Ivy League endowments, most of the people reading this blog probably aren’t big givers, but by continuing to delegitimize the Ivy League schools, and by not hiring its graduates, we can disincentive big-money donors from any more giving to these now disreputable schools.

[buck.throckmorton at protonmail dot com]

posted by Buck Throckmorton at 11:00 AM

| Access Comments