Tariffs are consuming so many headlines that you might have missed how Harvard, the pinnacle of the Ivy League, is struggling to come to terms with a simple, undeniable reality: It’s about to get its clock cleaned by Donald J. Trump.
Trump & Co., are sick of the antics of the Ivies — their blatant disregard for the law by looking to consider race in admissions, the far left tilt of the professoriate, and of course their acceptance of blatant antisemitic protests that erupted in support of one of the most heinous crimes in history, the Oct. 7, 2023, massacre of Israelis by Hamas.
Trump wants all of the above to stop, and to make it happen he is now throttling federal funds, and threatening their tax-exempt status, while the GOP Congress takes aim at school endowments, those large piles of investable cash that go a long way in keeping their lights on.
And if you understand the endowment system, along with the array of weapons Trump has at his disposal, you will also appreciate that Harvard has almost no choice in this battle but to capitulate just like Columbia, another hotbed of antisemitism after Oct. 7, which has announced a set of sweeping changes to campus life and curriculum.
That’s why it’s a bit baffling that Harvard actually has the chutzpah to fight Trump. Its president, Alan Garber, has announced a lawsuit against the White House after Trump froze $2.2 billion in federal aid over its woke policies like DEI and its half-hearted attempts to root out all forms of antisemitism.
As you might expect, Garber was cheered on by the political left for his defiance; people like Barack Obama, Larry Summers — both Harvard grads; Summers once ran the place — framed it as a heroic attempt to defend academic freedom against intrusive government. This fails the logic test — Harvard can still practice its academic freedom but not at taxpayers’ expense.
It also fails the financial logic test. Put simply, based on the numbers this is a battle Harvard can’t win if its goal is to maintain its size, scope and stature in elite academia.
Harvard’s endowment is big; at $53 billion it’s larger than most Wall Street hedge funds. But it funds a budget that is heavily reliant on federal aid. What court is going to say federal funds come with no strings attached? Dive deeper and you will fully understand why the endowment doesn’t have the money to cover what Trump wants to cancel. First, much of the endowment is earmarked for specific needs based on conditions put forth by donors. Plus it’s heavily invested in one of the more illiquid assets on Earth, private equity.
PE comprises nearly 40% of its $53 billion portfolio. That means a $2 billion freeze of federal funds appears more like a $20 billion freeze because the money has to come from somewhere and that somewhere is tied up in stuff like investments in early-stage non-public companies and other illiquid assets. Only a few very specialized buyers exist and they are looking for bargains.
Compounding Harvard’s problems: Trump is threatening the university’s tax exempt status; donors wouldn’t be able to deduct the money from their tax bills. On top of that, the GOP House and Senate are likely to consider legislation to ramp up a tax on endowment returns from a paltry 1.4% to as high as 35%. VP JD Vance once pushed for such a move and Trump won’t be far behind.
As first reported about 10 days ago by your humble correspondent, Harvard will be selling a chunk of its PE in a market pretty barren of buyers these days because of a freeze in public offerings of stock, and questions about valuation as we head into a possible recession. This past Thursday, news reports surfaced that the school hired bankers to begin shopping a $1 billion chunk, right on the heels of a similar fire sale by Yale.
Yes, Harvard will pay a steep price for its defiance.
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