Harvard says cash holdings climb to $1b

By Beth Healy, Globe Staff  |  October 20, 2010

Harvard University more than tripled its holdings in cash and US Treasuries, to $1 billion, by the end of fiscal year 2010, following sharp investment losses during the financial crisis that left the nation’s richest institution temporarily cash-strapped.

Harvard, in its annual report for the 2009-2010 year, ending June 30, said it made “significant progress’’ reshaping the university’s pool of operating funds “to be more readily available, and less susceptible to illiquidity and market fluctuations.’’ Harvard said it started to put the money in safer, shorter-term investments, starting in fiscal year 2008 and will stick with that strategy over the next year.

The university’s top financial officials said in the report that Harvard had made progress in responding to changed economic circumstances. “Nonetheless, we 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.


With an annual operating budget of $3.7 billion — trimmed by 1 percent, or $32.5 million, from the previous year — Harvard said it expects to further add to its cash holdings in 2011, according to the report.
Still, Harvard had a net operating deficit of $4.7 million for fiscal year 2010, meaning expenses outstripped revenues. In the devastating prior year — which included steep declines in the endowment and the loss of $1.8 billion in cash — Harvard operated at a $45.3 million surplus.

The school also reiterated the reasons behind its decision to put an ambitious Allston expansion project on hold, saying that since December of last year it has been reevaluating its strategy due to “reduced financial resources.’’ With a massive science complex delayed indefinitely, officials are focused on leasing some of the Allston property, landscaping unfinished construction sites, and adding resources for the community such as a sports center and skating rink. Plans for development of the Allston campus will move ahead “as resources allow,’’ according to the report, but there was no estimate of when that might happen.

Building at the site stopped in part because Harvard is limited in how much debt it can issue and still maintain its AAA rating with bond agencies. The university’s total bonds and notes outstanding were $6.3 billion at June 30, up from $6 billion a year ago. The debt load has more than doubled since 2006, and last year cost Harvard $265 million in interest. That was up more than 25 percent from 2009 interest expense.
Harvard said it has taken further measures to decrease risks on interest rate exchange agreements. Such agreements act as hedges to protect against dramatic changes in interest rates. Harvard spent $500 million in 2009 to get out of derivatives intended to insulate from rising rates. When rates instead fell, the investments backfired.

In 2010, Harvard reported, it entered into $696 million worth of new interest rate exchange agreements, called swaps, aimed at reducing the risk of losses on older swaps that were written with different terms. The new swaps did not cost anything up-front, but if rates rise, the university will be less likely to recoup any past losses on the investments, it said.

As of June 20, Harvard’s total liability related to interest rate exchange agreements was $731 million.

Beth Healy can be reached at bhealy@globe.com.