From teaching finance to needing it: Harvard University’s wake-up call. There are lessons here for you, me, and every CXO.

Reading Harvard Business School (HBS) case studies taught me about business and finance in my MBA. The irony is unmistakable: HBS's current crisis would make for a compelling HBS case study.

Harvard’s $53 billion endowment is the largest of any academic institution. Yet, it recently had to borrow $1 billion by issuing bonds to keep the lights on and pay salaries.

Why? The dreaded L-word: Liquidity.

The current U.S. administration has threatened Harvard’s funding from several fronts — including freezing billions in federal funds, revoking its non-profit tax status, and restricting its ability to enroll foreign students.

Federal funds, International student tuition fees, and tax-exempt status are critical to Harvard’s ability to meet its day-to-day operating expenses.

Suddenly, Harvard is facing a serious liquidity crunch, and without quick access to cash, even bankruptcy isn’t off the table.

But what about the endowment?

Over 80% of its endowment is invested in illiquid alternative assets, specifically hedge funds, private equity, and real estate. With high interest rates, extreme volatility, and limited exit opportunities for PE funds, selling those assets now would mean taking steep losses.

Harvard isn’t alone. U.S. universities issued $12 billion in bonds in Q1 2025. Yale is reportedly trying to sell at least $6 billion in private equity holdings on the secondary market.

So, what are the lessons?

1. Cash is King. Cash is King. Cash is King.

2. Don't sacrifice liquidity for returns, or you'll face a fire sale and potential bankruptcy.

3. There is no holy grail in the financial markets. Textbooks may label U.S. Treasuries as risk-free, but in practice, no asset class is truly "safe".

4. "This time it’s different" — yes, especially with liquidity crunches, it is different every time.

A Personal note:

I was at GE Treasury during the Lehman Brothers collapse. When the credit markets froze overnight, AAA-rated GE had low cash on its balance sheet. Its ability to meet obligations was measured in hours, and bankruptcy was a real possibility. That liquidity crisis triggered the eventual breakup of the GE conglomerate.

Views are personal and should not be considered investment advice.

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