Key Takeaways
- • Endowments are facing a private equity liquidity squeeze, with the 2025 NACUBO-Commonfund Study showing 54.5% of equity allocations held in private or alternative strategies, according to Chief Investment Officer.
- • Abilene Christian's Joe Lee, who oversees a $1 billion endowment with roughly 30% in private equity, says the sector's distribution slowdown reflects a "failure of modeling" and expects lower distributions going forward.
- • McKinsey's Global Private Markets Report 2026 put the average 2025 holding period for a private equity portfolio company at 6.6 years, versus a historical average closer to five years, per CF Private Equity's Mark Hoeing.
- • Northwestern's $15.3 billion endowment raised its cash position to about 3.5% from 1%, and CIO Amy Falls is revising her private equity commitment model rather than her targets.
- • TIFF Investment Management continues to see value in the lower middle market and independent sponsors, where it believes valuations are more reasonable and managers can influence outcomes.
Summary
Endowments are navigating a liquidity squeeze driven by slow private equity exits, according to a Chief Investment Officer report. The 2025 NACUBO-Commonfund Study of Endowments found that 54.5% of surveyed endowment equity allocations were in private or alternative strategies. The squeeze coincides with higher operating costs, reduced federal funding, lower donations, inflationary pressure, shrinking enrollments and, for some large endowments, higher taxes under the One Big Beautiful Bill Act of 2025.
Abilene Christian Investment Management Company CIO Joe Lee said the endowment, which manages about $1 billion, holds roughly 30% of its portfolio in private equity and has a higher allocation to energy-focused private managers than peers. Lee said endowments had relied too heavily on historical distribution patterns and on general partners' timelines, and now expects lower distributions. He called it "a failure of modeling" and argued it is not prudent to invest so aggressively in illiquid assets that an institution cannot adjust to changes relative to its model.
At Northwestern University, public equity is the largest holding at 31.8%, above its 29% target. Private equity sits at 14.5% against a 17% target, while venture capital is at 21.3% against 20%. CIO Amy Falls, who oversees the $15.3 billion endowment, said strong public market returns over the past three years allowed the endowment to harvest gains that partly offset the lack of private equity distributions. Falls holds 5% of the portfolio in fixed income, mostly short-duration U.S. Treasurys, and has raised cash to about 3.5% from 1%, a level she expects to persist until about January.
TIFF Investment Management's Anne Duggan said large endowments with the most illiquid exposure are trimming or redeeming marginal actively managed, often tax-inefficient, liquid managers to meet liquidity needs. McKinsey's Global Private Markets Report 2026 put the average 2025 holding period at 6.6 years. Mark Hoeing, president and CEO of CF Private Equity, said the historical average is closer to five years and that many investors are now cash-flow negative, receiving more capital calls than distributions, which forces them to slow or resize commitments.
TIFF's Brendon Parry said the distribution drought has not weakened institutions' belief in the illiquidity premium but has reinforced the importance of manager selection. "The premium needs to be earned, and the dispersion between managers is likely to become even more important," he said. Falls said venture capital has shown that "new, good inventions do power returns," but she is changing her private equity commitment model, asking what must be gained in exchange for giving up flexibility.
Lee is also being selective, focusing on commercial real estate and distressed or special-situation corporate private equity, and he wants managers who can project net multiples above three times. He does not expect market balance for several years. Parry said extending holds carries costs, noting that "extending a hold doesn't automatically make an investment more valuable." Falls compared the extended duration of private equity holdings to negative convexity in bonds, which makes liquidity harder to forecast and requires higher return premiums.
Abilene Christian Investment Management Company CIO Joe Lee said the endowment, which manages about $1 billion, holds roughly 30% of its portfolio in private equity and has a higher allocation to energy-focused private managers than peers. Lee said endowments had relied too heavily on historical distribution patterns and on general partners' timelines, and now expects lower distributions. He called it "a failure of modeling" and argued it is not prudent to invest so aggressively in illiquid assets that an institution cannot adjust to changes relative to its model.
At Northwestern University, public equity is the largest holding at 31.8%, above its 29% target. Private equity sits at 14.5% against a 17% target, while venture capital is at 21.3% against 20%. CIO Amy Falls, who oversees the $15.3 billion endowment, said strong public market returns over the past three years allowed the endowment to harvest gains that partly offset the lack of private equity distributions. Falls holds 5% of the portfolio in fixed income, mostly short-duration U.S. Treasurys, and has raised cash to about 3.5% from 1%, a level she expects to persist until about January.
TIFF Investment Management's Anne Duggan said large endowments with the most illiquid exposure are trimming or redeeming marginal actively managed, often tax-inefficient, liquid managers to meet liquidity needs. McKinsey's Global Private Markets Report 2026 put the average 2025 holding period at 6.6 years. Mark Hoeing, president and CEO of CF Private Equity, said the historical average is closer to five years and that many investors are now cash-flow negative, receiving more capital calls than distributions, which forces them to slow or resize commitments.
TIFF's Brendon Parry said the distribution drought has not weakened institutions' belief in the illiquidity premium but has reinforced the importance of manager selection. "The premium needs to be earned, and the dispersion between managers is likely to become even more important," he said. Falls said venture capital has shown that "new, good inventions do power returns," but she is changing her private equity commitment model, asking what must be gained in exchange for giving up flexibility.
Lee is also being selective, focusing on commercial real estate and distressed or special-situation corporate private equity, and he wants managers who can project net multiples above three times. He does not expect market balance for several years. Parry said extending holds carries costs, noting that "extending a hold doesn't automatically make an investment more valuable." Falls compared the extended duration of private equity holdings to negative convexity in bonds, which makes liquidity harder to forecast and requires higher return premiums.
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