What Yale’s Endowment Is Teaching Us—Again

When I help families and institutions construct long-term portfolios, I often refer back to the Yale Endowment as a foundational model. For decades, it’s been the gold standard—an iconic example of how to invest with discipline, conviction, and a long time horizon. David Swensen, who led Yale’s investment office for over 35 years, shaped how endowments, family offices, and even sovereign funds think about asset allocation. The “Yale Model”—heavy on private markets like PE, VC, hedge funds, and real assets—became not just a strategy, but a philosophy.

But even the most revered models must evolve.

Recently, Yale quietly began selling portions of its private equity portfolio, something unthinkable under Swensen’s leadership. This isn’t just about Yale. It’s a signal. For those of us managing money for families and institutions across generations, this moment offers valuable insight—and a cautionary tale.

Let me explain why I think this matters.

The Power and Pitfalls of Illiquidity

Swensen championed illiquid assets because universities, like many families with multi-generational wealth, don’t have a set “end date.” They can afford to ride out cycles, capture the illiquidity premium, and benefit from compounding over decades. That still holds true in principle.

But today’s environment is different.

Interest rates are no longer zero. The IPO window is narrow. M&A activity is slower. Exit opportunities in private equity have dried up—and the once-reliable cash flows from PE distributions are now less predictable. That’s one reason Yale, along with peers like Harvard and Brown, is tapping into secondary markets to sell legacy positions, often at a discount.

In my experience advising clients, I’ve learned that illiquidity is only a blessing when it aligns with flexibility. When circumstances change—whether due to market stress, tax shifts, or new investment opportunities—liquidity becomes a premium, not a cost.

Tax Pressures Are Changing the Math

The other force at play here is taxes. A proposed U.S. tax hike could raise the rate on large endowments from 1.4% to as high as 21%. This may not apply to most private investors yet, but the principle applies: If tax policy is shifting, we need to rethink how and when we realize gains. For some of my clients, that means strategically crystallizing returns before rules change. For others, it’s about re-evaluating fund structures and jurisdictions. We can’t assume the tax environment will be as favorable tomorrow as it was yesterday. Yale isn’t.

The Denominator Effect—And Why It Sneaks Up on You

In 2022, the S&P 500 dropped nearly 20%. Most private assets didn’t mark down as quickly, if at all. The result? Portfolios that were suddenly overweight private equity—not because of new investments, but because public markets fell faster.

I often tell clients: It’s not about whether you love PE or not—it’s about whether you’re balanced. Yale is correcting that balance now. That’s a useful reminder for all of us.

A Culture Shift, Not a Strategy Collapse

It’s important to say this: Yale still believes in private equity. They’re not abandoning the model—they’re adapting it.

This isn’t a wholesale rejection of Swensen’s playbook. It’s a reminder that models are built on assumptions—and when those assumptions change, so must our allocation decisions.

My Takeaway for Families and Investors

What does this mean for us—those managing generational wealth, stewarding foundations, or overseeing diversified portfolios?

It means we need to:

• Stress test our portfolios not just for performance, but for liquidity.

• Revisit our private market allocations in light of changing exit conditions.

• Be proactive in tax planning, especially if future rates may rise.

• Remain disciplined, but not dogmatic.

  
  

I’ve always believed in learning from the best. Yale remains one of the best. But even they are adjusting course. And that’s the real insight: even a great strategy needs refinement in a new environment.

As I continue guiding my clients, I take this as another opportunity to pause, reflect, and sharpen the way we allocate—because permanence in investing doesn’t come from the assets we choose, but from the principles we apply with clarity and care.