By Jen Saarbach & Kristen Kelly, Co-Founders of The Wall Street Skinny
When you learn about institutional investors, you’re bound to come across the “David Swensen” or “Yale Endowment” model. David Swensen, the former CIO of Yale’s Endowment, pioneered the asset-class based allocation theory that many capital allocators still use today.
And now, we’re seeing that theory put to the test.
Yale University’s endowment is reportedly seeking to sell $6 billion worth of private equity stakes on the secondary market — approximately 15% of its $41 billion portfolio.
This isn’t just a routine rebalancing. It reflects growing pressure on endowments and pensions to find liquidity in an illiquid world.
The Yale endowment model is specifically known for emphasizing alternative investments like private equity, venture capital, and hedge funds. These asset classes typically offer higher returns but come with the trade-off of limited liquidity.
According to past disclosures, close to 60% of Yale’s portfolio is tied up in illiquid assets.
But there’s a problem. Yale — and other investors with funds tied up in private capital investments — can’t access their money until those investments are exited, either through a sale, an IPO, or another liquidity event.
With exit markets frozen — IPOs delayed, M&A on hold, and capital calls still rolling in —endowments are increasingly constrained.
The Rise of Secondaries as a Solution
Enter: the secondaries market.
Selling stakes in private equity funds gives LPs (like Yale) is a way to rebalance portfolios or raise cash without waiting for a fund’s final distributions.
But this growing trend is not without friction. According to recent reporting from Bloomberg, several PE firms are refusing to approve secondary sales unless the seller commits fresh capital to new funds — a move seen by many as an attempt to pressure LPs into ongoing commitments.
Liquidity, Politics, and the Path Ahead
The political environment adds another layer of urgency. With the Trump administration’s recent threats to revoke University endowments’ tax-exempt status or cut research funding, universities are increasingly under pressure to maintain larger liquidity buffers. For institutions like Yale, secondaries are not just a portfolio management tool; they are becoming a lifeline.
Understanding how secondaries work is critical. These are negotiated transactions where one investor sells their stake in a private equity fund to another. The buyer typically purchases the stake at a discount to the fund’s net asset value (NAV), depending on the quality of the assets and prevailing market conditions. As more institutions head to the secondaries market, prices may be driven lower, and buyers will have more leverage.
To learn more about how PE secondaries work, check out our full 101 episode here!