MIT’s Risky Business

Related research: Elite U.S. Endowments: Government Funding and Liquidity Pressure • A Private Equity Liquidity Squeeze By Any Other Name • Multiple Shades of “Green”: UPenn’s Cash Flow Dilemma • FY2023 Ivy Report Card: Volatility Laundering and the Hangover from Private Markets Investing

Prophecies abound

Media coverage has zeroed in on President Sally Kornbluth’s recent message warning of “significant new financial pressures,” “financial realities,” and – most notably – conveying grave uncertainty: “no one can predict what’s coming at us next.” The immediate question is: what are these pressures, really, and where could the true fragility lie?

What’s already known (and largely manageable)

Over the past year MIT has taken textbook steps to address budget pressure – e.g., a hiring freeze for many non‑faculty roles, targeted expense reductions, and issuing roughly $750 million in taxable debt – these are things that businesses do on a regular basis without a lot of fanfare. On their own, even an incremental $190 million annual hit from an 8% tax on investment income (roughly ~10% of the central budget) shouldn’t upend a ~$24B endowment that has compounded at 10.5% annually over the last decade. Then, there are risks of a different kind – university is embroiled in multiple legal actions with the government while dealing with hate speech, antisemitism and swastikas on campus.

So why the emphasis on unexpected financial pain?

Liquidity ≠ the main problem

MPI is known for its technology that can read “between the lines” – whether these are cash flows of a private fund, NAVs of a star hedge fund, or annual financial results of an endowment. Few years ago, we launched MPI Transparency Lab to leverage MPI Stylus analytics to provide insights (derived from public financial reports) into inner workings of elite institutions. Right after FY23, the Lab  warned of a looming liquidity squeeze facing elite endowments and projected that PE‑heavy portfolios would be forced to sell private equity stakes at discounts and raise more debt – well before any threats of government cuts.

From an MPI Transparency Lab perspective, MIT’s liquidity profile screens as comparatively resilient among elite endowments:

• On our Funding vs. Liquidity Risk Map, MIT sits in the lower‑left quadrant: relatively low unfunded PE obligations and relatively modest reliance on federal funding (excluding Lincoln Lab) when both are scaled to readily available liquid assets. In a world where both PE capital calls and budget gaps compete for cash, MIT looks sturdier than most – likely second only to Dartmouth in our current universe.
• MPI Lab estimates place unfunded PE commitments at ~19.5% of total PE allocated & committed, consistent with a mature, distribution‑ready private equity book. Liquidity risk never disappears, but for MIT it does not appear to be the first‑order concern implied by the President’s language.

It’s (largely) market risk

Where MIT truly stands out is portfolio volatility. Using MPI Stylus factor‑based estimates, MIT exhibits a 10‑year annualized standard deviation of 21.6%, nearly double both a 70/30 global benchmark (~11%) and the lowest‑risk peer, Columbia (~11.9%). Brown is the only elite peer in the same neighborhood, at ~20.1% volatility and Duke has similar if not higher risk as MIT but this could be explained by its exposure to volatile crypto (via Coinbase).

Even if one computes volatility directly from annual endowment returns (a blunt method), MIT still screens ~50% more volatile than the benchmark.