Seeking Liquidity, Harvard Ups Cash Allocation to $1 Billion

(October 26, 2010) — After being pummeled by the global financial crisis that left endowments around the country short of money, Harvard, like other wealthy universities, has increased its cash holdings and aims to “maintain or further increase” cash holdings this fiscal year, it said in its annual report, adding that it had a combined $4 billion of so-called internal liquidity as of June 30.

As part of the school’s strategic shift to form a more liquid portfolio, the Cambridge, Massachusetts-based university revealed it has more than tripled its amount of cash, US Treasuries, and other liquid assets to $1 billion by the end of fiscal year 2010 from $300 million in June 2008 while decreasing the amount of operating funds in its endowment, according to the university’s annual report. From December 2008 to November 2009, Harvard, Yale University, and 13 other wealthy universities that rely heavily on endowment earnings to run their campuses sold a combined $7.2 billion of taxable bonds as they ran low on cash.

Last year, Harvard lost $1.8 billion of its operating funds because much of the money was invested alongside its endowment, which dropped 27.3% and led to layoffs, salary freezes and a delay in construction projects. This year, however, the school’s investments rose 11% for its fiscal year ended June 30, outpacing its own benchmark.

“Significant progress was made in transitioning the investment profile of the university’s pooled operating funds to be more readily available and less susceptible to illiquidity and market fluctuations,” university officials said in the report. University officials added that while Harvard has made progress in responding to a tough economic environment, the university “must continue to be vigilant in managing our finances in order to ensure that Harvard can fulfill its mission even with the continued uncertainty that surrounds us,” they wrote.

Additionally, the university reiterated its plan to delay its ambitious Allston expansion project as a result of “reduced financial resources.” According to the report, plans for development of the Allston campus will move ahead “as resources allow.”