The nation's largest universities have tens of $billions in endowment funds, yet are
experiencing a cash squeeze. [bold added]
Over the past couple of decades, no group of investors has piled into what are called alternative assets more eagerly than the endowment funds of major colleges and universities. In their rush to emulate the stellar success of Yale University’s endowment head David Swensen, who died in 2021, educational institutions pulled tens of billions of dollars out of stocks and bonds and poured it into hedge funds, private equity, venture capital and other investments that don’t trade publicly.
The result looks nothing like the portfolio of 60% stocks and 40% bonds that has long been a guidepost for many investors. On average, in fiscal 2024, educational endowments with more than $5 billion in assets held only 2% in cash, 6% in bonds, 8% in U.S. stocks and 16% in international stocks, according to the National Association of College and University Business Officers. That left two-thirds of their total holdings in private funds and other non-traditional assets that can’t readily be turned into cash.
Now you understand the life-or-death panic that seized such elite institutions as Brown, Columbia, Cornell, Harvard, Northwestern and other universities when the Trump administration threatened to cut off their federal funding. Even though their endowments hold billions of dollars, much of that immense wealth might as well be stored on the planet Proxima Centauri b, about 4.2 light years away.
These universities are slashing budgets, freezing their hiring and scrambling to raise money any way they can.
An investment rule that's easy to understand but emotionally difficult to implement is to keep enough liquidity to cover cash needs, even during a down market or a shortfall from a funding source like the Federal government. It's a hoary lesson that one doesn't need an MBA from Harvard, Stanford, or Wharton to follow: greed and pride can be your downfall.
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