Endowments Face Liquidity Crunch Amid Market Pullback, Funding Cuts

Universities with large allocations to private markets are borrowing in the bond market to address funding issues, as private equity capital calls can compete with research funding for liquidity.

Harvard University announced Tuesday that the institution will issue $750 million in taxable bonds, following a $450 million offering last month. The issuance comes as private markets investments have generated weaker returns and large universities are facing federal funding cuts.

A task force from the administration of President Donald Trump is reviewing $9 billion in federal grants to Harvard and gave the university a list of demands that would allow it to escape a funding freeze.

“As part of ongoing contingency planning for a range of financial circumstances, Harvard is evaluating resources needed to advance its academic and research priorities,” a spokesperson for the university said in a statement.

Trump has already cut or announced plans to cut hundreds of millions in university funding: $175 million to the University of Pennsylvania has been frozen, as well as $400 million to Columbia University. Approximately $510 million in federal grants for Brown University are also expected to be frozen.

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Harvard is not the only institution turning to the municipal bond market to access liquidity. In an April 1 notice to investors, Princeton University announced it is considering the sale of $320 million of taxable bonds, with the proceeds to be used for general corporate purposes.

Stanford University announced in February that it would sell $327 million worth of bonds, and the University of Pennsylvania also tapped the municipal bond market in January.

But universities are not only facing funding cuts. Their endowments, which fund a significant amount of their spending, have posted lackluster returns in recent years, largely due to these institutions’ large allocations to private markets. Federal cuts could further constrain these institutions’ liquidity needs.

Weak Private Markets Returns

Many large university endowments have significant allocations to private markets. The Harvard endowment, for example, allocated 39% of its portfolio to private equity and another 31% to hedge funds, as of the university’s 2023 fiscal year. It only had an 11% public equity allocation. According to Markov Processes International’s transparency lab, private equity accounts for 37% of assets under management across the Ivy league, MIT and Stanford.

One short-term benefit is that these high allocations to the private markets may insulate these endowments from the volatile equity market. It is unclear how much Wednesday’s rally in U.S. public equities offset paper losses these funds have experienced so far in 2025.

Smaller endowments are more likely to have a heavy allocation to public markets. According to the National Association of College and University Business Officers, the best-performing endowments for fiscal 2024 were also the smallest ones, because they tended to have a larger allocation to public markets.

Endowments with less than $50 million in assets under management returned an average of 13% in fiscal 2024, while endowments with more than $5 billion in AUM returned 9.1%, according to NACUBO.

The best-performing university endowment in fiscal 2024 among institutions with at least $1 billion in AUM, according to NEPC, was the UC San Diego Foundation, with a 15.5% return. For the fiscal year, the endowment held 64.8% of its portfolio in equities, driving 90% of the fund’s returns.

The worst-performing endowment was the Princeton University Endowment, managed by the Princeton University Investment Co., with a 3.9% return.

While endowments with higher allocations to private market assets have underperformed in recent years, they have outperformed over longer periods of time.

But these endowments must now deal with the recent pullback in the equity markets: The S&P 500 Index is down 7% year-to-date, and was down as much as 25% this year, and while public markets performance will have a pronounced effect on those endowments with equity-heavy portfolios, it could also squeeze what little liquidity larger endowments have left.

Endowments With the Most Liquidity, Funding Risk

According to MPI, Columbia and Cornell University are the most vulnerable Ivy League institution to federal funding freezes and have the highest government funding risk, which MPI calculates as the ratio of fiscal 2024 grants to the liquid portion of the endowment’s portfolio, against an endowment’s liquidity risk, the ratio of unfunded private equity commitments to the liquid portion of a portfolio.

Despite the two institutions having among the lowest private markets allocation, Columbia and Cornell are the most reliant of their peers on federal grants: Government funding as a percentage of endowment AUM at the two institutions was 9.1% and 7.85%, respectively, according to MPI.

Source: Markov Processes International

Brown University has the highest liquidity risk among its peers, according to MPI, and the highest ratio of unfunded private equity commitments, suggesting the endowment, which has a 27% allocation to private equity, has the youngest average vintage, which could result in a lower level of near-term distributions.

“PE liabilities extend over several years—even if no new commitments are made. At first glance, these two funding streams may seem unrelated,” according to MPI. “However, analyzing them together is crucial because if grants are not received, PE capital calls and research funding must compete for liquidity.”

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Tags: Endowments, Foundations, Markov Processes International, universities

From April 3 through April 8, the 25 largest state and local pension funds in the U.S. collectively lost $169 billion following the announcement and rollout of President Donald Trump’s new tariff policy, according to research from the Equable Institute.

These funds, representing roughly two-thirds of public pension assets in the U.S., have seen a total of $248.8 billion in value lost from public equities this year, not counting losses from other asset classes, such as fixed income and private assets. The S&P 500 has fallen nearly 15% year-to-date. It is unclear how much Wednesday’s rally in U.S. public equities offset the paper losses pension funds have experienced so far in 2025.

“Therefore, we know that the losses public pension funds have experienced are deeper than just the initial public equity declines,” the Equable report stated. The plans have approximately 42% of their assets in public equities, according to Equable.

Private assets are typically valued on a quarter lag; however, share prices of private equity firms like KKR & Co. Inc. and Apollo Global Management Inc. have each fallen about 20% since April 2, “reflecting a widespread concern that the economic value of privately held companies have also been severely affected by the new trade restrictions,” Equable noted.

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Public pension funds entered 2025 with significant unfunded liabilities. According to Equable, U.S. public plans had an average funded ratio of 80.2%—approximately $1.37 trillion in unfunded liabilities.

“The financial market shock of the last few days is exactly the kind of negative scenario that fragile pension funds should be concerned about,” the Equable report stated. “It will also be very important to monitor individual pension funds that were already distressed in some capacity coming into this year.”

The largest public pension funds in the U.S. include the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the New York City public pension funds, the New York State Common Retirement Fund, the Teachers Retirement System of Georgia, the Minnesota State Board of Investment, the Florida Retirement System, the Teacher Retirement System of Texas, and the Oregon Public Employees Retirement System.

“Long-term investors are careful to not react too quickly or strongly to any given day’s headlines. Even so, we are carefully assessing the impact of recent events on CalPERS’ investment returns,” said Stephen Gilmore, CIO of CalPERS, in a statement. “While we’re well-positioned to weather unsettled times, we aren’t immune to these market challenges. And it’s quite possible these challenges will affect the annual investment returns that we will report on June 30.”

Jase Auby, CIO of Texas Teachers’, emphasizes the long-term focus of a public pension fund insulates them from short-term movements.

“Pension funds are designed to be long-term investors, with asset allocations that are robust to short-term market movement,” Auby says. “As a large investor with plenty of liquid assets, Texas Teachers’ can weather this volatility and even benefit from the opportunities that arise for investors with a steady hand and a long time horizon.”