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Elite Colleges Have a Looming Money Problem

Trump policies and high costs could make coming years a financial challenge for Harvard and other Ivies

They gave it the old college try, but America’s elite universities are facing money problems partly of their own creation.

It might not seem that way compared with the broader world of U.S. higher education. Ivy League institutions and a handful in a similar orbit like Stanford, Duke and the University of Chicago aren’t just blessed to have international cachet and their pick of excellent students and professors—they also have the most money and the richest alumni. By contrast, public and especially smaller private colleges and universities are cutting staff and programs. Many are closing outright.

A school like Harvard, now well into its fourth century, will almost certainly survive for a fifth one. But there are financial problems below the surface that could emerge if the bull market stumbles and especially if some proposed Trump administration policies are enacted.

Harvard’s $53.2 billion endowment is so huge that the difference between a good and a so-so investment performance translates to sums that would dwarf most colleges’ entire nest eggs. Former Harvard President and former U.S. Treasury Secretary Larry Summers estimated this year that if Harvard had been able to just keep up with other Ivies and “large endowment schools” in the past several years, it would have $20 billion more. For perspective, he says that just $1 billion could fund 100 professorships or permanently cover tuition for 100 students.

But even Harvard’s peer group isn’t doing as well as it could. Veteran investment consultant Richard Ennis wrote this month that high costs and “outdated perceptions of superiority” have stymied Ivy League endowment returns, which could have been worth 20% more since the 2008 financial crisis if invested in a classic stock and bond mix. Harvard has more than three-quarters of its endowment in private equity, hedge funds or real estate and just 14% in publicly traded stocks. Harvard Management Company doesn’t break out fees in its reports and a spokesman didn’t provide that information, but Ennis estimates that the all-in cost of management for such assets is easily 3%, which is a gigantic drag.

Expenses aren’t the only issue. During the financial crisis, when donations plunged and costs rose, Harvard also faced steep investment losses and collateral calls on derivatives. With some investments hard to sell and money already committed to the university, HMC had to exit some stakes at distressed prices and the university was forced to postpone capital projects and borrow to cover the shortfall.

Today it doesn’t face the same derivatives exposure, but private-equity values could be more theoretical than real if it had to sell swiftly. More liquid investments have other advantages. Last year the university relied on the endowment for 37% of its budget, up from about a fifth of the budget 20 years ago and far higher than the average across private, not-for-profit colleges. This comes as gifts have been less abundant. Despite a booming stock market, Harvard said alumni donations fell by 15% last fiscal year amid outrage over the university’s handling of campus antisemitism. Fellow Ivies Columbia and the University of Pennsylvania experienced even steeper drops.

Two Trump administration policies could further weigh on Ivies’ finances. One is a 1.4% tax on income levied as part of the 2017 Tax Cuts and Jobs Act on endowments larger than $500,000 per student at schools with more than 500 students. A few dozen schools have had to pay it and there is talk of increasing the levy.

Far costlier would be rhetoric or visa rules that make it harder or less attractive for foreign students to attend U.S. universities. Foreign students on average receive much less assistance and therefore indirectly subsidize aid to domestic students. Their enrollment took a hit during Trump’s first term.

Even if foreign students aren’t made to feel unwelcome, economic policies that have boosted the value of the dollar relative to foreign currencies could make already expensive U.S. colleges, with a total cost of attendance approaching $100,000 a year before aid, unattractive relative to European, British or Australian universities.

Domestic demographics won’t help. Paul Weinstein Jr. of the Progressive Policy Institute writes that, starting next year, colleges will face an “enrollment cliff” that will see them lose 575,000 students over four years. Yet a booming stock market and competition for student tuition dollars has led to massive growth in university bureaucracies far exceeding tenured staff hires. More than three million people are employed by four-year colleges and Weinstein notes that some actually have more non-faculty employees than students, including Duke and Caltech.

The more elite the college, the less they will suffer from a drop in overall U.S. enrollment. Harvard alone, for example, rejected more than 50,000 students last year—enough to populate several less-prestigious colleges’ freshman classes. A drop in stocks, or a reckoning that reveals their opaque private-equity funds aren’t as valuable as they look on paper, would leave a mark, though.

Retrenchment in industry has led to concerns about the spread of ‘pharmacy deserts’ with limited access to medicines

American drugstores are disappearing from street corners, with big chains Walgreens and CVS closing hundreds of locations and independent pharmacies struggling to survive. 

The reshaping of a ubiquitous part of the retail landscape reflects gathering pressures inside stores.

At the rear of the store, business at pharmacy counters is being squeezed by stingier drug reimbursement rates and pharmacist wages. In the aisles, sales of everything from greeting cards to cosmetics are feeling the effects of cut-price competition.

CVS, the largest pharmacy chain by store count, has shut 900 stores in the past three years and intends to close another 270 in 2025. Walgreens has shrunk its US footprint by 1,000 stores in the past six years and plans to pull the plug on as many as 1,300 more in the next three years. Smaller rival Rite Aid exited bankruptcy proceedings in September offering dozens of surplus properties for lease. 

Wall Street has taken a dim view of pharmacy operators’ prospects, with shares of parent companies CVS Health down more than 40 per cent and Walgreens Boots Alliance off more than 60 per cent in 2024. 

“The whole drugstore four-wall economic model is collapsing on itself, in my opinion,” said Josh Cummings, a portfolio manager at Janus Henderson Investors. 

Retrenchment among US drugstores has also sent ripples through commercial property markets and caused public health officials to worry about the spread of “pharmacy deserts” — areas without convenient access to medicines — often in poor urban and rural areas.

Drugstores received a boost as testing and vaccination hubs during the Covid-19 pandemic. But as the disease’s virulence fades, structural problems have re-emerged for the nation’s pharmacies. 

Dispensing prescription drugs is a $621bn business, according to the Drug Channels Institute, and it drives about three-quarters of US pharmacy sales. The profitability of the business depends on a complex web of payments involving patients, pharmacies, drug wholesalers and health insurance intermediaries known as pharmacy benefit managers. 

The benefit managers have for years pushed for lower reimbursements paid out to pharmacies for the prescriptions they fill, said Elizabeth Anderson, analyst at Evercore ISI. This has continually reduced Walgreens’ gross profit margin by more than half a percentage point each year, she said. 

Drugstores also have relatively high labour costs with pharmacists who can earn more than $125,000 a year, Anderson said. Pharmacists, complaining of pressure to boost sales, have been organising a labour union. 

Chain drugstores expanded aggressively early in the century through construction and acquisition, leaving more than 60,000 pharmacies across the country.

“I think most of us knew . . . that retail pharmacy was largely overbuilt for where the future was going to be, particularly given the possibility of technology, home delivery and so forth,” Tim Wentworth, chief executive of Walgreens, said in June. Walgreens Boots Alliance, which also owns UK pharmacy chain Boots, is now in talks to sell itself to private equity firm Sycamore Partners.

CVS Health, the parent of the namesake pharmacy chain, also has an in-house benefit manager, shielding itself from a portion of drug reimbursement pressures. But it still must negotiate with outside managers as well. 

CVS pointed to factors including population shifts, consumer buying patterns and pharmacy density to inform decisions to shut stores. Even as it closes hundreds of stores next year, it plans to open almost 30 new locations, including some inside of Target, the mass merchandiser where CVS already operates pharmacies. 

“We’re closing locations strategically to better meet consumers’ health, wellness and pharmacy care needs — as announced more than three years ago — not in reaction to industry pressures,” CVS said. 

Drugstores have long competed with pharmacies housed in supermarkets and at Walmart, the US retail giant. The latter intends to launch same-day home medicine delivery nationwide by the end of January.

Amazon, which purchased online pharmacy PillPack in 2018, is also rolling out same-day drug deliveries to almost half the country in 2025. “We’re building a modern pharmacy; what we like to think of as a pharmacy in your pocket,” Hannah McClellan, vice-president of operations, product and technology at Amazon Pharmacy, said at a press briefing earlier this year. 

Drugstores also face intensifying competition at the “front of store”, where items as varied as over-the-counter medicines, toothpaste, snacks and stationery are sold — usually at higher prices. Some products are locked behind plastic to deter theft, creating an inconvenience that can curtail sales. 

“The pricing is a lot more competitive at Amazon or even a grocery store or mass merchandiser, and they really haven’t done much to improve their value positioning,” said Mike Blackburn, an executive vice-president at RetailStat, a retail industry research company. 

The number of pharmacies peaked in the middle of the past decade at about 66,000, according to a study published this month in the journal Health Affairs. There was considerable turmoil in the sector, however: of pharmacies that operated at any point in the previous decade, 29 per cent had closed by 2021, according to Dima Qato, one of the study’s authors. 

The National Community Pharmacists Association, an Alexandria, Virginia-based trade group, estimated that independent community pharmacies totalled 18,984 locations in June, down from 19,432 the year before. 

“I don’t know how this is going to shake out, to be honest,” said Christine Mastandrea, chief operating officer at Whitestone Reit, a commercial landlord with tenants that include Walgreens. “I know a lot of corners are going to go for sale.”

Eni fires up €100mn supercomputer in race to find oil and gas reservoirs

Italian energy giant switches on the world’s most powerful machine outside the US

Italian energy giant Eni is firing up the world’s most powerful supercomputer outside the US this Christmas as it races rivals to build the technology infrastructure needed to better explore for new sources of oil and gas.

Built at a cost of more than €100mn, Eni’s new machine, HPC6, will be switched on in the small Italian town of Ferrera Erbognone, population 1,140. It contains almost 14,000 AMD graphics processing units: high-powered chips used to perform complex calculations and run artificial intelligence processes.

The supercomputer took fifth place in an annual list of the world’s fastest computers last month with a benchmark speed of 477 petaflops per second, behind three US research computers and Microsoft’s cloud-based Eagle computer. 

Its job will be to crunch data to discover new oil and gas reservoirs, as well as to perform calculations to advance clean energy. 

Lorenzo Fiorillo, the head of Eni’s research and digital department, said the computer was almost nine times faster than its predecessor and that Eni was one of the few oil companies that has kept building its own machines, rather than switching to buying cloud computing services. 

“A lot of the other companies realised it would be more efficient to rent time on someone else’s supercomputer,” said Rob West, an analyst at Thunder Said Energy, adding that Exxon, Shell and Chevron had used supercomputers at the US National Center for Supercomputing Applications and the Los Alamos National Laboratory. 

Eni’s supercomputing division has helped the Italian company burnish its reputation for oil and gas exploration. “We were able to find oil in places where we saw nothing,” said Fiorillo. He noted that as well as computing power, Eni had built significant capability in coding the algorithms for HPC6 to run. “We started producing our own code in the 1980s,” said Fiorillo. 

“We have used the supercomputer in all of our latest discoveries,” he added, saying that extreme computing power helped Eni navigate the so-called pre-salt layer, a series of geological formations beneath thick layers of salt on both sides of the south Atlantic. “Our algorithms can create clear images of where the oil is and how big it is,” he said.  

While oil companies have been using supercomputers to interpret seismic data and model the behaviour of oil and gas reservoirs for years, they are now also increasingly using AI to do everything from creating digital twins of their assets to generating hundreds of different options for how to drill oilfields and where to place their wells.

Fiorillo said that his research team now spent 70 per cent of its time on clean energy and that HPC6 would be used to research how to manage plasma clouds in nuclear fusion reactors for discovering new materials; to increase the efficiency of devices that capture carbon emissions; and to work out how to make better solar panels. 

The company declined to comment on whether supercomputers would soon be overshadowed by giant computing systems, such as the Colossus data centre created by Elon Musk in Memphis, Tennessee. But it said its own data centre in Ferrera Erbognone, just over 25 miles south-west of Milan, was “well-positioned for upcoming expansions”. 

Chess champion Magnus Carlsen leads gambit to capture ancient game

Norwegian fronts F1-inspired Freestyle Chess league that aims to exploit ‘massive untapped potential’

Magnus Carlsen has a vision to transform the ancient game of chess. The grandmaster, a contender to be the greatest player in history, is convinced that a revamped version complete with heart rate monitors and “confession” booths can win over new fans as well as devotees, insisting there is “massive untapped potential”.

The Norwegian, the world’s highest-rated chess player, has joined forces with German technology investor Jan Buettner and New York-based Left Lane Capital to launch a league that takes inspiration from sports such as Formula 1 motor racing.

He and fellow competitors in the Freestyle Chess Grand Slam Tour will compete under a version of the game that randomises the starting position of the kings, queens, bishops, knights and rooks so as to prioritise creativity and intelligence over memorised lines of play.

“We inherently believe this is a better game than what we’ve been playing in classical chess,” Carlsen told the Financial Times. “A lot of people who are in gaming feel that having a new map for every game is tremendously exciting.”

The heart rate monitors will reveal the stress levels endured by players, while confession booth-style interviews will follow a similar format to those used in reality television shows.

The competition, which gets under way at Buettner’s German estate in February before moving on to Paris, New York, Delhi and Cape Town, is a play for a global online chess audience that has boomed since the pandemic. The profile of chess was raised by the success of The Queen’s Gambit, a Netflix series released in 2020 that tells the story of a fictional female prodigy.

Left Lane has invested $12mn, an example of how investors are trying to bring new business models and competition formats to sport in search of returns.

“You obviously have the GOAT [greatest of all time] in Magnus, which is a magnet for the best players in the world,” said Harley Miller, a Left Lane managing partner. “When you have the best players in the world, it allows you to think about distribution and the audience from the outset.”

Miller acknowledged that the league would not be “immediately profitable”, but that the aim was to increase revenues from sponsorship, ticketing, hospitality and hosting fees.

To achieve this, Freestyle Chess are seeking to reimagine the board game as a “media event” along the lines of a F1 race or a professional basketball match, with the idea of building a season-long narrative for fans to follow, according to a presentation shared with the FT.

Elevating the profile of the players is key to those ambitions. “What makes F1 so exciting is the context, the colour codes of the drivers, the back stories, the personal stories of these people,” Buettner said.

Freestyle Chess will prioritise reaching viewers and not place itself behind a paywall for now, according to Buettner, although media rights deals could follow “when we have enough distribution”. Chess.com is its biggest distributor at present, he added. The prize fund for each of the first three events will be $750,000, subsequently rising to $1mn.

Carlsen’s backing is significant because he is the highest-profile player in the sport. He sat out of this year’s classical world championship, organised by governing body Fide, a crown he held for 10 years until he relinquished it in 2023 after growing exasperated with the format.

But he was in Singapore to promote Freestyle Chess before 18-year old Indian Gukesh Dommaraju took the world title. Dommaraju will join the new league.

Carlsen picked up on the aim of the competition’s backers to “make the chess players into race car drivers”, saying it was “definitely something we want to lean into, to make it about something more than only the game”.

First, he added, “we need to have a great product. Then we can build the culture around everything.”

China steps up campaign for single people to date, marry and give birth

Women receive cold-calls about family planning and universities asked to offer ‘love courses’ to tackle demographic crisis

China has stepped up a nationwide campaign to convince single people to date, marry and have children as Beijing grapples with an increasingly severe demographic crisis.

Local governments are cold-calling married women to ask about their plans to have children and are handing out cash to parents to encourage them to have more than one child.

Universities have been asked to introduce so-called love courses for single students, and regular articles appear in state media about the benefits of having children.

China’s population is shrinking, with the number of deaths outstripping births, piling pressure on local governments to address an increasingly bleak demographic outlook.

“China’s population faces three major trends: ageing, low birth and low marriage rates,” said prominent economist Ren Zeping in an interview with domestic press last month. “There are fewer children and more elderly people. The speed and scale of China’s ageing is unprecedented.”

Beijing has pledged to offer subsidies and bigger tax cuts for parents to reduce the cost of raising children. The State Council, China’s cabinet, in October said it was drafting a plan to build a “birth-friendly society” as part of a broader stimulus package to tackle an ailing economy. Details of this plan are still being thrashed out.

In the meantime, married women in their 20s and early 30s across the country have been receiving calls from local officials asking about their plans to start a family, according to multiple people who spoke with the Financial Times and posts on social media.

In some instances, callers asked women to attend prenatal body checks. Other callers were more direct, offering subsidies to women who had more than one child. Couples need to have on average 2.1 children to reach the population replacement rate.

A Zhejiang resident who declined to be named said officials offered local women a Rmb100,000 ($14,000) subsidy for having a second child. “There is no explicit policy, but if you ask for it, the village will find you a way to get you the subsidy,” she said. Currently, subsidies for children are determined by local governments depending on their fiscal health.

The personalised lobbying comes against a background of an intensified media campaign hailing the benefits of childbirth. In recent months, the state-run People’s Daily and Life Times have promoted scientific voices saying childbirth is good for the mother’s health and can even help prevent cancer and treat certain diseases.

A state-run publication by the National Health Commission in December called on universities to set up “marriage and love education courses” to encourage students to couple up.

“Universities are an important place for college students to fall in love,” it wrote, citing a survey that 57 per cent of students said they did not want to get into a relationship due to their heavy workload.

The article proposed that universities introduce courses on the theory of love and real-life case analysis to promote a “systematic knowledge of love and marriage”.

However, experts are sceptical that official measures to bolster the birth rate will persuade young people to start families, especially as rising unemployment and tepid economic growth have reined in spending.

Wang Feng, an expert on Chinese demographics at the University of California, Irvine, said officials were resorting to the same “playbook of using administrative power to achieve demographic goals” that was evident during the one-child policy era, the 35 years from 1980 when families were restricted to having one child.

While Beijing successfully stopped couples from having multi-child families, it is harder to use administrative powers to achieve the opposite result, he said. “Such old wine in a new bottle will not be effective, as the rationale underlying late marriage and low fertility are entirely different.”

Shen Yang, a feminist writer, said people could “see through the propaganda”.

“If the government wants to bolster the birth rate, it should create a more friendly environment for parents, especially single mothers,” she said.

While Beijing is encouraging births, there are no signs that it has limited access to birth control or abortions. Although there may be specific instances of doctors refusing to carry out procedures, these often reflect concern about legal action from family members, said a gynaecologist in Beijing.

Still, Wang said authorities had an uphill battle convincing “young women and men today, who belong to the most educated generation in Chinese history” to have children.

“For young women especially, they not only face high living costs but also severe career penalties when they leave their work position to have children.”

Private equity payouts fell 50% short in 2024

Value of investments cashed out lingers well below historic average for third consecutive year

Private equity funds cashed out just half the value of investments they typically sell in 2024, the third consecutive year payouts to investors have fallen short because of a deal drought.

Buyout houses typically sell down 20 per cent of their investments in any given year, but industry executives forecast that cash payouts for the year would be about half that figure.

Cambridge Associates, a leading adviser to large institutions on their private equity investments, estimated that funds had fallen about $400bn short in payments to their investors over the past three years compared with historical averages.

The data underline the increasing pressure on firms to find ways to return cash to investors, including by exiting more investments in the year ahead.

Firms have struggled to strike deals at attractive prices since early 2022, when rising interest rates caused financing costs to soar and corporate valuations to fall.

Dealmakers and their advisers expect that merger and acquisition activity will accelerate in 2025, potentially helping the industry work through what consultancy Bain & Co. has called a “towering backlog” of $3tn in ageing deals that must be sold in the years ahead.

Several large public offerings this year including food transport giant Lineage Logistics, aviation equipment specialist Standard Aero and dermatology group Galderma have provided private equity executives with confidence to take companies public, while Donald Trump’s election has added to Wall Street exuberance.

But Andrea Auerbach, global head of private investments at Cambridge Associates, cautioned that the industry’s issues could take years to work through.

“There is an expectation that the wheels of the exit market will start to turn. But it doesn’t end in one year, it will take a couple of years,” Auerbach said.

Private equity firms have used novel tactics to return cash to investors while holdings have proved difficult to sell.

They have made increasing use of so-called continuation funds — where one fund sells a stake in one or more portfolio companies to another fund to another fund the firm manages — to engineer exits.

Jefferies forecasts that there will be $58bn of continuation fund deals in 2024, representing a record 14 per cent of all private equity exits. Such funds made up just 5 per cent of all exits in the boom year of 2021, Jefferies found.

But some private equity investors are sceptical that the industry will be able to sell assets at prices close to funds’ current valuations.

“You have a huge amount of capital that has been invested on assumptions that are no longer valid,” a large industry investor told the Financial Times.

They warned that a record $1tn-plus in buyouts were struck in 2021, just before interest rates rose, and many deals are carried on firms’ books at overly optimistic valuations.

Goldman Sachs recently noted in a report that private equity asset sales, which had historically been done at a premium of at least 10 per cent to funds’ internal valuations, have in recent years been made at discounts of 10-15 per cent.

“[Private] equity in general is still over-marked, which is leading to this situation where assets are still stuck,” said Michael Brandmeyer of Goldman Sachs Asset Management in the report.

Chinese demand has slumped as competition from lab-grown alternatives has increased

De Beers Group has amassed its biggest stockpile of diamonds since the 2008 financial crisis, laying bare the group’s challenge in reviving demand for jewels long seen as the pinnacle of luxury.

A slump in Chinese demand, intensifying competition from lab-grown alternatives and the legacy of pandemic lockdowns, when the number of marriages fell, has left the world’s biggest diamond producer by revenue with inventory worth about $2bn.

The scale of the stockpile, which has not been previously reported, has hovered around the $2bn mark for much of the year, according to the company.

“It’s been a bad year for rough diamond sales,” said chief executive Al Cook.

The prolonged decline in demand that began with the Covid pandemic has forced De Beers to take measures to curb supply of the precious stones. It has cut production from its mines by about 20 per cent from last year’s levels and reduced prices at its most recent auction this month.

Auctions are used to sell rough, or uncut, diamonds to a group of about 50 certified buyers known as sightholders, who are the industry’s most powerful dealers.

With a 20,000-strong workforce, De Beers has been a dominant force in the $80bn diamond jewellery market since it was founded in the late 19th century. The group’s revenues dropped to $2.2bn in the first half of this year, from $2.8bn in the same period in 2023.

Its biggest rival, Russia’s Alrosa, was hit by sanctions imposed on Russian diamonds by the G7 nations this year following the full-scale invasion of Ukraine in 2022.

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The diamond market’s struggles come as De Beers is set to be spun off into a separate company by its owner, Anglo American. The FTSE 100 mining group promised to offload De Beers after fending off a £39bn takeover bid from rival BHP this year.

Anglo’s chief executive Duncan Wanblad has warned that disposing of De Beers, either through a sale or an initial public offering, could be complicated by the weak state of the diamond market.

In an effort to boost sales, De Beers launched a marketing push in October focused on “natural diamonds”, echoing its famous advertising campaigns of the second half of the 20th century. 

Cook, who has led De Beers since February 2023, said that as the group prepared to be spun off, it would boost investment in advertising and retail, including expanding its network of stores to 100 globally, from 40 today.

“The restart of this huge campaign of category marketing . . . I think this is very much an early indicator of what an independent De Beers will look like,” Cook added.

“As we go independent, we have the freedom to focus on marketing as hard as we focused on mining,” he said. “This feels to me like the right time to be driving marketing and getting behind our brands and retail, even as we cut the capital and the spend on the mining side.”

Tepid demand in China has been a significant drag this year. In a sign of the weakness of a market that typically imports diamonds, the country’s jewellers have resorted to exporting polished stones to reduce their own stockpiles.

Competition from lab-grown diamonds, which cost about one-twentieth of a natural stone, has also grown, particularly in the US. The country is the world’s largest diamond market and accounts for about half the industry’s sales.

Cook insists that next year could bring a “gradual recovery” globally, including in the US.

“We see the emerging signs of a retail recovery [in the US] in October and November,” he said this month, pointing to credit card data that showed an uptick in jewellery and watch purchases. 

Paul Zimnisky, an independent industry analyst, said De Beers’ rough diamond sales were on track to be down about 20 per cent this year, after falling 30 per cent in 2023.

“Given the low base, any recovery in the trade should result in some relative growth in 2025,” he said, adding that he expected global diamond jewellery sales to rise about 6 per cent to $84bn next year.