Why Endowments Are Not a Quick Fix for Universities Facing Funding Cuts

Most universities facing funding cuts from the administration of President Donald Trump have sizeable endowments, but using those portfolios to address the funding shortfalls is not as easy as it seems.

Ivy League and other top universities have massive endowments. Harvard University’s, for example, was valued at $53.2 billion as of June 30, 2024, the largest of any U.S. university, according to a report by the National Association of College and University Business Officers and Commonfund. But that sum is not readily accessible.

In fact, the endowment is not even a single fund—the $53.2 billion is comprised of 14,000 individual funds, most of which are subject to restrictions and long-term purposes, according to Harvard’s fiscal 2024 financial report.

“People think of endowments as one big pot of money, but most are made up of thousands of restricted funds tied to donor intent, usually for a specific purpose,” says Cathleen Rittereiser, co-author of the book “Foundation and Endowment Investing.” “It’s just not that easy to just tap into that.”

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Even if universities do pull from their endowments to make up for federal funding losses, they jeopardize their ability to provide the same level of education for future generations, a concept often referred to as intergenerational equity.

“If a university pulls from its endowment now, it reduces what future generations can benefit from,” Rittereiser says. “It’s not just a financial hit—it’s a philosophical one.”

Trump vs. Harvard

Harvard, facing a $2.2 billion cut in multi-year federal grants after refusing to comply with government demands to change its hiring and oversight practices, would see a loss nearly equal to the $2.4 billion it drew from its endowment last year—37% of its total revenue.

The list of demands with which the government insisted Harvard comply—such as curbing antisemitism on U.S. campuses—was communicated via an April 11 letter to the university, which Trump administration officials claim was sent by mistake, according to a New York Times report.

“For the government to retreat from these partnerships now risks not only the health and well-being of millions of individuals, but also the economic security and vitality of our nation,” Harvard President Alan Garber said in a statement on last week.

The government is planning to pull an additional $1 billion of Harvard’s funding for health research as the dispute continues, according to the Wall Street Journal.

Harvard on April 21, sued the Trump administration in Massachusetts federal court to prevent the funding cuts.

A group of nine other universities and higher education associations sued the U.S. Department of Energy on April 14, also in Massachusetts federal court, calling cuts to federal funding “a flagrantly unlawful action by the Department of Energy (“DOE”)—slashing ‘indirect cost rates’ for government-funded research.”

The Bigger Picture

Taken together, the potential loss of federal funding at targeted universities would create immediate and long-term financial strain. While endowments may see increased demand from university budgets, legal restrictions and market volatility make them an unreliable solution to these shortfalls.

“It’s a very risky time for colleges and universities, particularly those that rely heavily on their endowments,” says Larry Ladd, an executive search consultant at the Association of Governing Boards of Universities and Colleges, who previously served as director of budget and financial planning at Harvard.

Moving forward, universities may look to aggressively grow their endowments, but that approach comes with its own risks.

Some universities facing federal funding cuts could lose more money in federal funds than the amount of endowment funds they have used for operations in recent fiscal years.

John Hopkins University, for example, which could lose $800 million in federal grant money, drew about $544.5 million from its endowment toward its $8.9 billion in operating revenues in fiscal 2024, according to its 2023-2024 audited financial statements. The college had an endowment return of 12.6% in fiscal 2024, following a loss in fiscal 2023.

Brown University had about $7.2 billion in its endowment as of June 30, 2024. The university appropriated $281 million from its endowment to support its fiscal 2024 budget, providing 21% of revenue. Its endowment had a 11.3% return in the fiscal year, according to the report.

The New York Times reported earlier this month that Brown stands to lose more than $500 million in federal funding due to Trump administration cuts, but that total has not been announced, as of this article’s publication.

Like Harvard, other universities would need to raise alternative funding to make up for the loss of federal funds, but tapping into their endowments is hard to do, and it would not cover the shortfall.

“Taking money from the endowment for shortfalls means cutting support for something else,” Ladd says. “It’s not a trade-off—it’s a reduction.”

Universities Lack Liquidity

Another hurdle faced by higher education institutions is that their endowment funds are, largely, not tied to liquid assets.

For example, Harvard’s endowment is allocated as follows: 39% to private equity, 32% to hedge funds, 14% to public equities, 5% to real estate, 5% to bonds and TIPs, 3% to other real assets and 3% to cash, according to its financial report. Harvard’s asset allocation usually stays consistent, with a three-percentage-point increase in public equities representing the largest year-over-year change.

Brown’s is similarly allocated, with 42% to private equity, 21% to absolute return or hedge funds, 13% to public equity, 12% to real assets, 7% to fixed income and 5% to cash, according to its financial report.

After accounting for an annual spending rate of about 5% and the need to keep pace with inflation—the Federal Reserve targets 2%—universities usually need to hit high single-digit annual returns. To meet those goals and reduce vulnerability to public market volatility, many have shifted more of their portfolios into private equity and other illiquid alternative assets, according to Tim Yates, the president and CEO of Commonfund OCIO, the outsourced CIO of asset manager Commonfund.

“You’re talking about an upper-single-digit return objective,” Yates says. “That’s already hard to do, and in fact, over the last 25 years, most endowments have not achieved that. Add in the extra burden of having to supplement other revenue sources, such as [if] federal grants or tax exemptions go away, [and] it becomes an even greater challenge.”

An “endowment is not constructed to be a liquidity provider to the institution,” Yates adds.

How Universities Are Raising Money

Meanwhile, universities have turned to alternative funding sources to prepare for looming federal funding cuts.

Harvard announced earlier this month that it will issue $750 million in taxable bonds, having already offered $450 million in bonds in March.

Princeton University, which has had $214 million in federal funding revoked, announced it is considering the sale of $320 million of taxable bonds, with the proceeds to be used for general corporate purposes.

Brown, not yet officially faced with cuts, entered into a $300 million loan this month, according to a regulatory filing. The loan matures in 2032 and has a 4.86% interest rate, according to the filing.

“Given the volatility in the capital markets and the uncertainty regarding future federal policy related to research and other important priorities of Brown, the University is fortunate to have a number of sources of liquidity, including commercial paper programs, bank lines and the private and public debt markets that are available to help us manage our finances and priorities during this period,” a Brown spokesperson said in a statement.

Elsewhere, Yale University is reportedly selling up to $6 billion of its private equity portfolio, according to Secondaries Investor. However, a spokesperson for the university disputed the reported figure in a statement to CIO and indicated that the sale will only transact if pricing is attractive.

“The University is exploring a sale of private equity fund interests and is being advised by Evercore in a process that has been in the works for many months,” the spokesperson said. “We remain committed to private equity investments as a major part of our investment program and continue to make new commitments to funds raised by our current investment managers. In addition, we continue to actively seek new relationships with private equity firms in the Endowment.”

Tags: Alternative Investment, Asset Allocation, Commonfund, Endowments, higher education

The $1.8 billion acquisition of its U.S. and European business will see 700 Macquarie staff join Nomura and will open wealth management opportunities in the U.S. for the Japanese bank.

Australian financial services giant Macquarie Group Ltd. will sell its U.S. and European asset management business, with a combined $180 billion in assets under management, to Japanese bank and asset manager the Nomura Group, the two companies announced Tuesday, significantly expanding the Japanese firm’s access to U.S. based clients.

The $1.8 billion all-cash transaction is expected to close at the end of the calendar year, subject to regulatory approval. Macquarie will continue to keep its existing asset management business outside of the U.S. and Europe.

Nomura and Macquarie reported that they will establish a working group to explore potential opportunities for collaboration between the two firms.

Macquarie managed A$916.8 billion ($585.86 billion) in assets, as of September 31, 2024. As of December 31, 2024, Nomura’s investment management division had $584 billion in assets under management. The acquisition will see the firm’s AUM grow to about $770 billion.

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“This transaction will accelerate the expansion of our global Investment Management business and will be a significant step in building a truly global franchise with a comprehensive set of solutions to serve investors worldwide,” said Chris Willcox, chairman of Nomura’s investment management division, in a statement.

The acquisition will also give Nomura a wealth management channel in the U.S. The firm will become a U.S. wealth distribution partner for Macquarie, providing access to Macquarie’s alternative investment offerings, and will seed alternative investment funds for U.S. wealth clients.

Approximately 50% of the AUM of the acquired businesses is managed for retail clients. Insurers make up 35% of clients, and other institutional investors account for 15%, according to a statement from Nomura. AUM for U.S. clients represent 90% of the acquired Macquarie business unit’s assets.

Equities make up 50% of the acquired business’ assets, fixed income 40% and multi-asset 10%.

Macquarie Asset Management staff in Europe and the U.S. will join Nomura, including Shawn Lytle, president of Macquarie Funds and head of the Americas; John Pickard, CIO of equities and multi-asset; Greg Gizzi, CIO of fixed income; and Milissa Hutchinson, head of U.S. wealth distribution.

The asset management business that will be acquired by Nomura has approximately 700 combined employees in the U.S.—in Philadelphia and in Overland Park, Kansas—and in Europe—in Vienna and Luxembourg.

“[The acquisition] will be transformational for our investment management division’s presence outside of Japan, adding significant scale in the U.S., strengthening our platform, and providing opportunities to build our public and private capabilities,” said Kentaro Okuda, Nomura’s president and CEO, in a statement. “We are delighted with the prospect of welcoming all 700-plus employees that will be joining the Nomura Group.”