University endowment funds in the U.S. are offloading private equity stakes as tax hikes loom. They frame it as strategic, but industry voices increasingly suspect disappointing returns are forcing their hand.
Yale University is selling up to 6 billion dollars in private equity fund stakes, the largest known sale of its kind by a U.S. university. The transaction, internally dubbed “Project Gatsby,” is more than a portfolio reshuffle.
The sale, with more than 3 billion dollars already executed, comes amid stalled private equity distributions, mounting political threats, and what The New York Times and Bloomberg have described as rising internal doubts over performance.
Stephanie Pries, an attorney who advised Notre Dame’s endowment for nearly two decades, said there is now a “very reasonable suspicion” that underperformance is the main factor behind recent secondary market activity among top-tier endowments.
“If you urgently need liquidity, it’s odd to sell the least liquid part of your portfolio,” Pries told Investment Officer. “Unless those funds simply aren’t worth holding.”
“Even if these funds have posted gains, returns may have fallen short of expectations, or distributions may be too slow to support ongoing spending needs. That alone can drive endowments to the secondaries market, regardless of political pressure,” she added.
The project name is a nod to The Great Gatsby and may serve as a metaphor for changing attitudes toward Yale’s once-revered investment strategy. In F. Scott Fitzgerald’s novel, Jay Gatsby—a Yale graduate—is a wealthy dreamer whose grand ambitions end in disappointment. Similarly, the endowment’s bet on private equity was built on high expectations of long-term outperformance, in what became known in the PE sector as the Yale model.
A fading premium
The core promise of private equity, consistent outperformance, is increasingly under question. In 2024, State Street data show that private markets returned just 7.1 percent, while the S&P500 soared over 25 percent. For the first time since 2000, private equity underperformed largecap equities across every measured horizon: one, three, five and ten years.
Yale’s results reflect that trend in 2024. The endowment returned 5.7 percent, net of fees, for the fiscal year ending June 30. “Given our significant allocation to private assets, we expect to lag during periods of strong public market performance, particularly when exit markets for private assets are depressed,” Yale CIO Matt Mendelsohn said at the time.
Delayed exits are worsening the liquidity mismatch. PitchBook reports that most 2016-vintage buyout funds have yet to return the bulk of their committed capital. Distributions have slowed, exits remain scarce, and capital calls persist.
Tax pressure and political urgency
The financial pressure is being compounded by Washington. The Trump administration has proposed raising the tax on endowment investment income from 1.4 percent to as high as 21 percent for wealthy institutions. Roughly twenty schools, including Yale, Harvard, Stanford and Princeton, are now pushing for a compromise: a mandatory annual payout of 5 percent in exchange for keeping the lower tax rate.
According to Pries, the timing of the sale suggests a tax-motivated move. “If you sell now, gains are taxed at 1.4 percent. Wait, and you could be looking at a much higher rate,” she said. “That alone is a strong incentive to act.”
With federal research funding already being slashed, many endowments may have few alternatives but to monetize appreciated private assets. Hoping for a policy reversal under a future administration once new tax revenue is flowing, Pries added, “wouldn’t be a smart bet.”
From model to unwind
Yale’s sale is being managed by Evercore and is reportedly backed by HarbourVest Partners, Blackstone Strategic Partners, and Pantheon. Assets include older buyout funds from Bain Capital, Golden Gate Capital, Clayton Dubilier & Rice, and Insight Partners.
Some funds are nearing the end of their lives, while others remain active but illiquid. The reported pricing, in the mid-90s to net asset value with deferred payments, suggests a modest discount.
Still, the symbolism is hard to ignore. Yale, architect of the high-fee, low-liquidity strategy that reshaped institutional investing, is pulling back amid renewed scrutiny. That model, once viewed as visionary, is now under economic and political strain.
Other schools are following suit. Harvard is reportedly selling 1 billion dollars in private equity exposure. MIT, Notre Dame, and the University of Illinois are said to be exploring similar steps. According to Evercore, endowments accounted for 10 percent of LP-led secondaries volume in 2024, up from 8 percent the year before.
Not every institution is feeling the heat. Ken Miranda, CIO of Cornell University’s 10.7 billion dollar endowment, told Institutional Investor that he was “surprised” by the volume of secondary sales. “We’re not having that situation at all,” he said. Cornell avoided liquidity pressure by adhering closely to its rebalancing policy. “We rebalance when we should and have plenty of liquidity,” he added.
Illiquidity paradox raises more questions
Still, both Yale and buyers in the secondaries market have emphasized that this is not a repudiation of private equity. Moonfare, a private equity platform and secondary buyer, called the Yale and Harvard sales examples of “mature, strategic portfolio management.”
“Endowments are not abandoning private equity,” the firm said in a note to clients. “They are rebalancing, trimming non-core relationships and making space for new managers.”
Yale echoed that message. Private equity remains a “core element” of the university’s investment program, it said. The endowment continues to make new commitments and actively seeks relationships with fund managers. The sale, it stressed, is about liquidity and portfolio housekeeping, not a lack of conviction.
Yale’s 10-year return stands at 9.5 percent, outperforming the U.S. endowment average of 6.8 percent, but still below the S&P500’s annualized performance. Over 20 years, however, Yale has averaged a strong 10.3 percent annual return, beating America’s public equity markets.