Key Takeaways
- • Large endowments with at least $5 billion in assets posted the highest returns of any cohort in fiscal 2025, averaging 11.8%, according to the 2025 NACUBO-Commonfund Study of Endowments released in January.
- • Endowments with more than $5 billion allocated on average 62.5% of their portfolios to illiquid strategies, while those with less than $50 million allocated 12.5% to alternatives.
- • Despite slower private equity distributions, now in a fourth consecutive year of decline, large endowments are being more selective with manager re-ups rather than retreating from alternatives, per Fidelity's Erika Murphy.
- • Northern Trust's Jessica Donohue says institutions are responding to extended lock-ups by holding larger liquidity buffers, revisiting pacing assumptions and stress-testing portfolios.
- • Smaller endowments face sharper pressure, with operating-budget draws rising into the mid-teens of budgets, and advisers expect them to dial back illiquid exposure.
Summary
Large university endowments continue to hold substantial allocations to alternative investments, despite headwinds that have slowed private market returns and distributions. According to the 2025 NACUBO-Commonfund Study of Endowments, released in January, endowments with at least $5 billion in assets reported the highest returns of any cohort in fiscal 2025, averaging 11.8%. The lowest-performing cohort, endowments with between $101 million and $205 million, reported returns of 10.5%.
The so-called Yale model, initiated by the late Yale CIO David Swensen in the mid-1980s, emphasizes private equity, hedge funds, venture capital, infrastructure and credit with top-tier managers. That model has faced pressure from slower distributions from private equity general partners to limited partners, weaker alternative returns relative to public markets, federal funding cuts, rising tuition, declining enrollment and a new tax on the largest endowments' investment returns. Julia Wilkinson, CIO and managing partner at LEBEC Capital Partners, said strategies built during the post-financial-crisis low-rate environment have delivered strong long-term returns but created structural liquidity constraints in the current higher-rate environment.
Rather than retreating, large endowments are becoming more selective. Erika Murphy, a portfolio manager at Fidelity Investments, said endowments are 'being more selective' and moving more slowly on re-ups, noting that distributions from private equity funds have now been lower than historical averages for four consecutive years. Wilkinson said many endowments are increasing allocations to cash-yielding alternatives such as private credit and infrastructure.
Jessica Donohue, head of asset servicing at Northern Trust, said slower distributions are prompting institutions to reassess liquidity, hold larger buffers, revisit pacing and stress-test portfolios under delayed-distribution scenarios. Mike Scotto, founder of Highlight Advisors, noted that venture funds can provide countercyclical distributions during periods of weak public equity returns, and highlighted potential windfalls from prospective IPOs of OpenAI, Anthropic and SpaceX. Markov Processes International reported that top-performing higher-education endowments in fiscal 2025 attributed much of their performance to AI exposure through venture managers.
Smaller institutions face distinct pressures. Murphy said endowments and foundations now contribute mid-teens percentages of operating budgets at smaller institutions, up from high single digits or low double digits, while larger endowments have long provided about 20%. Scotto expects smaller institutions lacking access to top-quartile managers to reduce illiquid holdings.
Secondary markets have also become a portfolio management tool. Harvard and Yale made headlines in 2025 for selling billions of dollars in private equity stakes, which people familiar described as efforts to shed older vintages and redeploy capital rather than as liquidity-driven sales. Colin Hatton, a principal at NEPC, said investors weighing secondary pricing may accept discounts to reinvest capital in newer funds.
The so-called Yale model, initiated by the late Yale CIO David Swensen in the mid-1980s, emphasizes private equity, hedge funds, venture capital, infrastructure and credit with top-tier managers. That model has faced pressure from slower distributions from private equity general partners to limited partners, weaker alternative returns relative to public markets, federal funding cuts, rising tuition, declining enrollment and a new tax on the largest endowments' investment returns. Julia Wilkinson, CIO and managing partner at LEBEC Capital Partners, said strategies built during the post-financial-crisis low-rate environment have delivered strong long-term returns but created structural liquidity constraints in the current higher-rate environment.
Rather than retreating, large endowments are becoming more selective. Erika Murphy, a portfolio manager at Fidelity Investments, said endowments are 'being more selective' and moving more slowly on re-ups, noting that distributions from private equity funds have now been lower than historical averages for four consecutive years. Wilkinson said many endowments are increasing allocations to cash-yielding alternatives such as private credit and infrastructure.
Jessica Donohue, head of asset servicing at Northern Trust, said slower distributions are prompting institutions to reassess liquidity, hold larger buffers, revisit pacing and stress-test portfolios under delayed-distribution scenarios. Mike Scotto, founder of Highlight Advisors, noted that venture funds can provide countercyclical distributions during periods of weak public equity returns, and highlighted potential windfalls from prospective IPOs of OpenAI, Anthropic and SpaceX. Markov Processes International reported that top-performing higher-education endowments in fiscal 2025 attributed much of their performance to AI exposure through venture managers.
Smaller institutions face distinct pressures. Murphy said endowments and foundations now contribute mid-teens percentages of operating budgets at smaller institutions, up from high single digits or low double digits, while larger endowments have long provided about 20%. Scotto expects smaller institutions lacking access to top-quartile managers to reduce illiquid holdings.
Secondary markets have also become a portfolio management tool. Harvard and Yale made headlines in 2025 for selling billions of dollars in private equity stakes, which people familiar described as efforts to shed older vintages and redeploy capital rather than as liquidity-driven sales. Colin Hatton, a principal at NEPC, said investors weighing secondary pricing may accept discounts to reinvest capital in newer funds.
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