The American "subprime mortgage" went off like a bomb, sparking Harvard and Yale?

The Ivy League colleges are starting to sell private equity, and a "new subprime" crisis is slowly unfolding? On Sunday, according to media reports citing sources, facing pressure from the Trump administration and threats to its tax-exempt status, Yale University is seeking to sell its private equity investment portfolio on a large scale, with the potential for transactions to reach as high as $60 billion, equivalent to 15% of its $41.4 billion endowment fund, marking Yale's first sale on the secondary market. Not only Yale, analysts suggest that if its tax-exempt status remains threatened, Harvard University may also start selling liquid assets (such as stocks), and it may even issue more debt, only a matter of time. The conflict between Trump and universities is intensifying, with Ivy League universities' large endowments investments becoming the "eye of the storm." These universities have large endowment funds, which they use for high-risk investments such as private equity. Yale is a model for endowment fund asset allocation, ranking 27th among global private equity investors. With risks accumulating in the current private equity industry, this storm may likely trigger a larger crisis - a new "subprime crisis," and may lead to chain reactions: hedge funds trading ahead, private equity reevaluating at a discount, and even impacting venture capital departments supported by endowment funds. Analysts further point out that the core of the problem lies not only in high exposure, but in the fact that endowment funds were originally a model of "long-term investment": lacking liquidity, enjoying tax benefits, and being free from political interference. And now this insulation is breaking. Once Harvard sells under pressure, it will not only make headlines but also serve as a signal that defensive rotation, risk deintermediation, and a crisis of confidence in private equity valuations are beginning a new stage. Trump targets the "Ivy League," Harvard, Yale face pressure to sell According to CCTV News reports, the U.S. federal government recently threatened to freeze federal funds and demanded that several universities "rectify." The prestigious private university Harvard University chose to "fight back." On the 14th, Harvard rejected the Trump administration's request for significant reforms to its management structure, recruitment, and admissions policies. The U.S. government then announced the freezing of the school's total of approximately $22.6 billion in federal funds. On the 15th, Trump issued another threat to revoke Harvard University's tax-exempt status and demanded an apology from the university. On April 16th local time, U.S. Secretary of Homeland Security Kirstjen Nielsen announced the cancellation of two grants totaling over $2.7 million to Harvard University from the Department of Homeland Security. Facing severe financial challenges, reports indicate that Yale has been forced to sell up to $60 billion in private equity investment portfolios, with the endowment fund expected to reach $41.4 billion by June 2024, selling shares accounting for approximately 15% of the total endowment fund. FOX's senior business reporter on X stated: Wall Street executives focused on university endowment business have suggested that if their tax-exempt status remains threatened, it is only a matter of time before Harvard starts selling liquid assets (specifically stocks) in its investment portfolio, and may even issue more debt. Market reports, unconfirmed, suggest that the sales have already begun. Harvard's investment in private equity is substantial, close to nearly 40% of the endowment fund. Analysts suggest that such a large-scale sale is extremely rare in the history of educational endowment funds, indicating that the Ivy League schools are facing unprecedented financial pressures. The size of the endowment fund is even comparable to a country's GDP, focusing on private equity It is worth noting that elite universities such as Harvard are "as rich as a country," with Harvard University's endowment fund totaling nearly $52 billion, larger than the GDP of many countries. These universities are more willing to invest vast wealth in higher-risk assets, but this model also comes with risks. Historically, university endowment funds' investments have been very conservative, but in the early 1950s, Harvard adjusted its allocation to 60% stocks and 40% bonds, taking on more risks and creating more opportunities for growth. Other universities quickly followed suit, and Yale University pioneered the "Yale Model" in the 1990s, which focuses on diversified investments, allocating a large amount of funds to alternative assets, especially private equity. Yale University ranks 27th among global private equity investors, with investments in this asset class exceeding $20 billion. According to Harvard University's annual report, a significant portion of the endowment fund is allocated to private equity (39%), and Harvard has made significant adjustments to its investment portfolio allocation over the past seven years. Harvard Management Company has reduced its allocation to real estate and natural resources from 25% in 2018 to 6%. These reductions have allowed for increased investments in private equity. Additionally, Harvard will issue $750 million in taxable bonds, maturing in September 2035, and the university issued $244 million in tax-exempt bonds in February. Many universities, including Princeton and Colgate, have also issued bonds this spring. Moody's has not yet updated its AAA rating for Harvard University bonds. However, the rating agency is not as optimistic about higher education as a whole, downgrading its outlook to negative in March. "New Bond King" Jeffrey Gundlach said in a previous interview, Harvard originally operated based on cash flow from annual donations, allowing them to invest their principal, but they ended up having to finance hundreds of thousands of dollars in the bond market to pay for salaries and electricity bills. They have no liquidity at all, their money is locked in a completely immovable place. Will the turmoil in universities trigger a new "subprime" crisis? For the private equity industry, the Ivy League schools have always been among the most important investors. They not only provide significant funds but their investment decisions are usually seen as a market indicator. The forced exit of these university funds will change the industry's capital flow pattern and may lead to a revaluation of valuations. Especially now, the Wall Street private equity industry is facing a perfect storm, trapped assets, prolonged trading stalemates, valuation crises, and liquidity drought. Private equity giants like Apollo, Blackstone, and KKR have seen their stock prices drop by over 20% this year, far exceeding the decline of the S&P 500 Index. As trading stalemates continue, these companies will be under increasing pressure.The difficulty of returning funds to clients such as pension funds and donation funds is increasing day by day."The New Bond King" Gundlach has warned that the United States may be facing a new "subprime crisis" and the risks in the private equity market are severely underestimated. Analyst Marko Kolanovic also stated on X: The potential volatility of private equity assets has been hidden for many years. In 2020, private equity assets received much attention, but due to the release of large amounts of liquidity by central banks around the world, no issues ultimately surfaced. Since then, the size of private equity assets has continued to grow. However, what will happen if there is a prolonged downturn cycle in tariffs without central bank assistance? This is in addition to the current situation of university endowment funds. The Myth of "Long-Term Capital" Shattered EndGame Macro analyzed deeper impacts: The Harvard endowment fund incident reflects deeper structural fractures in American institutional capital, and is not just about a headline about a university. If true, the forced withdrawal of tax-exempt status due to political factors would compel Harvard to liquidate its most liquid assets - stocks, marking a paradigm shift in the way elite endowment funds respond to portfolio construction and geopolitical risk exposure. The core issue lies not only in leverage (40% exposure to private equity), but in the fact that endowment funds were originally exemplars of "long-term investment" - lacking liquidity, enjoying tax advantages, and free from political interference. And now, this isolation is breaking down. Historically, Yale and Harvard pioneered the "endowment fund model" under David Swensen's leadership, which involved reducing exposure to publicly traded equities, focusing on private equity, and optimizing portfolio targets with a strong and opaque professional focus on long-term investment. However, this model heavily relies on liquidity premiums. Now, with the threat of revoking tax advantages looming, liquidity has become a burden instead. Forced selling of publicly traded equities in a fragile market environment could trigger second-order effects: hedge funds front-running trades, private equity valuations discounted reevaluations, and even extending to venture capital departments supported by endowment funds (such as those connected to tech incubators or early-stage cryptocurrency funds). Looking back at the liquidity struggles of pension funds during the 2022 UK gilts crisis and CalPERS' private equity write-down cycle, these events present a similar pattern of elite institutions de-risking. There may be a misconception in the analysis, assuming that Harvard's entire investment portfolio is at risk. In fact, over the past year, Harvard may have hedged political risk through cautious asset repositioning. However, the psychological signal transmitted to other institutions (such as MIT, Princeton, and even corporate foundations) is crucial. A defensive stance on liquidity will silently tighten capital markets, layer by layer. This event marks the opening of an era of institutional allocators facing reputational risks. Today, political factors have become part of portfolio risk, and the myth of "permanent capital" has been shattered. Harvard selling stocks under pressure will not only be a headline, but also a signal of the beginning of a new stage of defensive rotation, risk intermediation, and a looming crisis of confidence in model-based private equity valuations. Next, closed-end funds and the secondary market of private equity may face stagnation and require close observation. This article is reprinted from Wall Street Horizon, GMTEight editor: Chen Wenfang.