Seeking Liquidity, Harvard Ups Cash Allocation to $1 Billion

The oldest and richest college in the US has released its annual report saying that following the financial crisis that left endowments around the country struggling to run their campuses, it has boosted its holdings of cash, US Treasuries, and other easy-to-sell assets.

(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.

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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.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The $14.4 billion endowment of Princeton University is planning to terminate 50% of its private equity managers, reducing its investments in leveraged buyouts.

(October 25, 2010) — Princeton University, the third-richest US school, plans to drop half of its $14.4 billion endowment’s private equity managers as it curbs investments in leveraged buyouts, Bloomberg is reporting.

“Our mantra is fewer, better, stronger relationships,” Chief Investment Officer Andrew Golden said in an interview with Bloomberg. “It applies across the board but most significantly to buyouts,” the largest piece of the university’s private equity holdings, said Golden, who has followed the approach of David Swensen, chief investment officer of Yale University, toward a strategy of helping endowments beat market indexes by relying on assets such as commodities, real estate and private equity.

Following the financial crisis of 2008, private equity stakes consisted of more than 35% of the university’s endowment, surpassing the target of 23%. In the past year, private equity generated a 19% return for the university, following behind the 43% gain by emerging markets stocks and the 23% increase by US equities. In the year ended June 30, Princeton’s investments gained 15% outpacing returns by both Harvard University and Yale, whose funds gained 11% and 8.9% respectively.

Separately, according to new research by State Street, private equity funds have posted a return of just 0.65% in the three months to the end of June this year. The research also showed private equity recorded a 19.2% return over the year to the end of June and mezzanine and distressed debt funds combined recorded a 27.9% return over the same period. While buyout funds and venture capital recorded 11.4% and 8.7%, respectively, distressed debt and mezzanine funds posted an 11.2% return since inception.

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To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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