Multiple Shades of “Green”: UPenn’s Cash Flow Dilemma

Related research: Elite U.S. Endowments: Government Funding and Liquidity Pressure • A Private Equity Liquidity Squeeze By Any Other Name • The Great Private Equity Squeeze of 2023 • FY2023 Ivy Report Card: Volatility Laundering and the Hangover from Private Markets Investing

The University of Pennsylvania was the latest among elite schools to issue debt this year. According to Buyout Insider, on May 15, UPenn’s Budget and Finance Committee approved the issuance of $300 million in debt, in addition to another $300 million approved in January—bringing the total amount of debt to nearly $5 billion. The board also increased its line of credit to $600 million, up from $100 million previously, noting that this action would serve as an “insurance policy” against liquidity pressures.

These pressures are real. In March of this year, the Trump administration suspended $175 million in federal funding to UPenn over its policies regarding transgender athletes. While the battle over these funds is still ongoing, it’s worth noting that creating a liquidity buffer of over $1 billion seems disproportionately large compared to the potential “budget hole.”

Almost a year ago, we conducted a detailed analysis of elite school endowments and concluded that outsized, illiquid private asset allocations had led to liquidity pressures even more severe than those during the global financial crisis of 2008. And that was well before any government funding cuts or tariff-induced market volatility.

We recently updated our research and found that by raising debt and selling significant chunks of their private equity (PE) portfolios in the secondary market, both Yale and Harvard were addressing cash flow problems caused by outsized unfunded PE commitments and record-low PE distributions—rather than by federal funding cuts. In the MPI Transparency Lab’s diagram below, Brown, Yale, and Harvard show some of the highest liquidity risk (Y-axis), as measured by the ratio of endowments’ unfunded PE commitments to MPI-estimated liquid assets.

Note UPenn’s unique position next to the Ivy League (8-school) average. Although its liquidity risk is not as high, its government funding risk (X-axis) is higher than that of most larger Ivies. In the current environment—marked by record-low PE distributions and the real possibility of losing research grants—both risk dimensions add up and could lead to some of the highest levels of stress.