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Is Harvard losing funding?

Is Harvard losing funding?

Colleges Ranking Index by Rebellion Research

Harvard University is considering issuing bonds worth $1.65 billion as part of a strategy to acquire funds through debt financing, a decision made amidst challenging economic conditions and recent issues with donors.

This move, if realized, would increase Harvard’s debt to a record $7.85 billion, surpassing any previous amounts, including those during the 2008 financial crisis.

For a university with over $5 billion in annual revenue, such a financial strategy is not unusual. Although the scale of this proposed bond sale is definitely raising eyebrows.

Harvard University has opted not to comment on this financial strategy.

The bond offering sheds bright light on Harvard’s current financial challenges!

Including donor dissatisfaction, expensive legal proceedings, and the looming threat of a Massachusetts endowment tax potentially costing $1.2 billion annually.

The bond proposal emerges as Harvard, heavily reliant on philanthropic support for nearly half of its yearly income, experiences a hiatus in donations from notable billionaires such as Kenneth C. Griffin and Len V. Blavatnik, partly due to concerns over the university’s handling of antisemitism issues on campus.

The university’s response to the Oct. 7 attack on Israel led to considerable criticism and a subsequent congressional inquiry, which involved subpoenas for senior Harvard officials, including Harvard Management Company CEO N.P. Narvekar.

The proposed bond issue includes two types:

$750 million in taxable fixed-rate bonds from the Harvard Corporation, and $900 million in tax-exempt fixed-rate bonds through the Massachusetts Development Finance Agency.

Facing a borrowing market with high interest rates, Harvard’s potential fundraising through debt could be notably expensive. The contrast is evident when compared to a previous bond issue of $750 million in 2022, under much lower Federal Funds Rate conditions.

The 2022 funding became intended for significant campus developments like the Science and Engineering Complex. In addition, the College Housing Renewal. However, the latest financial move, with no specified campus projects, suggests the reality is a response to decreased donations.

Oustpoken billionaire Harvard alumnus Bill Ackman took to Twitter to voice his feelings on the offering:

“The substantial majority of the Harvard endowment is invested in illiquid assets, principally private equity, real estate, and venture capital. Not reflected on the balance sheet are commitments to new funds of the same type. Like most endowments, @Harvard models expectations of fund distributions when considering its liquidity and when making future commitments. Harvard also makes assumptions about inflows from alumni donations.

The model likely did not predict a decline in liquidity events from private equity, real estate, and venture capital and the dramatic decline in donations. That is likely why Harvard announced this recent bond offering, which is being done in a substantially higher interest rate environment than where the funds could have been raised a couple of years ago. It would be interesting to understand how much the modeled cash flows have declined since original expectations. I wouldn’t be surprised to see Harvard announce a substantial cost reduction program soon. I suspect that alumni donations won’t be coming back for some time. At a minimum, alumni will want to know who the next president is, and the status of DEI and antisemitism on campus before resuming donations.” – (1) Bill Ackman on X

As Harvard explores this bond issue, it follows in the footsteps of institutions like Princeton, which also recently issued bonds. Despite both universities maintaining strong credit ratings, they face a challenging credit market and a cautious fiscal outlook for 2024.

Is Harvard losing funding?