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U.S. university funds are struggling to sell stocks in aging private equity funds, as the university sector is under pressure from federal fund cuts, hindering their ability to fund new investments.
According to public disclosures and interviews conducted by the Financial Times, at least four US universities, including Harvard University and Yale, have been actively investigating discounted secondary market sales of private equity stakes held by the donation fund to meet capital calls.
The pressure to raise cash from old investments comes as a private equity distribution, as the net asset value percentage fell from an average of 29% from 2014-2017 to just 29% from an average of 29% last year.
The Fund Fund is also rushing to complete sales in the current fiscal year ahead of any potential changes to investment tax. This could increase from 1.4% to 21% for the wealthiest universities if the proposal proposed by Republicans last week became law.
“We are very concerned about the overall donation tax issue combined with reduced federal funding,” said the private equity director for donations at major universities with more than $1 billion in assets. “We have some (private equity) assets in the secondary market, but the response has been muted.
A fund manager said that private equity secondary sales discounts have increased in recent months as investors sought liquidity.
“We recently saw (one) portfolio for 80-85 cents for a dollar,” he said. “There’s always a discount. The problem is prices that are willing to move on from these assets and reinvest in something else.”
The $41 billion Yale Fund Fund is trying to sell some of its venture and growth investments using the interests of a strong record top buyout fund as a sweetener to trade ahead of the end of June 30, according to those familiar with fund investments. They added that the fund received very few bids on the entire portfolio.
A close to the Harvard Management Company, which oversees $53 billion in assets, said the donation is investigating sales of around $1 billion in private equity stakes “to ensure that the right level of cash is available to meet potential capital or new commitments that may come in the future.” Harvard is a regular user of the secondary market and has recently used the market to broadcast funds that have become aging as discounts narrow.
Harvard declined to comment. Yale did not respond to requests for comment.
Advisors to the large donation fund said they were reluctant to sell assets at a massive discount, adding that “it means my gut doesn’t sell that much” because there are other ways to raise funds, such as issuing debt.
Harvard has already issued $1.2 billion in bonds this year, compared to less than $1.2 billion in 2024 and less than $788 million in 2022.
The chief investment officer of another large university fund said it has increased its cash allocation from 3% to 5% in recent months. “We want to stock up on cash because I might be asked by the administration or the board,” he said.
He added that he is considering selling private equity stakes in the secondary market as they don’t generate much cash.
The chief investment officer of a medium-sized university fund, which completed secondary sales in recent weeks, said these will continue “in a controlled way” for the coming months to meet capital calls, which amount to up to 4% of the fund’s assets.
“We want to increase realizations and increase distribution,” he said. “That’s the only real long-term solution.”
US President Donald Trump cut billions of dollars in federal funding to universities. There has been more than $2.6 billion in grants to Harvard Cut, and “some people have targeted more than $2.6 billion in grants, citing their failure to plague campus and fall into anti-Semitic harassment.
This week, the House Committee on Methods and Means will lay out university and university plans with donations of more than $2 million per student (including Harvard and Yale) and pay 21% of net investment revenue, much higher than the current 1.4%.
Other wealthy universities will be hit by tax increases based on the latest proposals, although at a lower tax rate. Colleges with donations of $1.255 billion to $2 million will pay 14% investment income tax, while universities with donations of $750,000 to $1.25 million will pay 7%.
Additional Reports by Andrew Jack
