The endowment model in 2026: Invest through uncertainty 

The Economic Policy Uncertainty Index, which tracks the frequency of newspaper coverage referencing economic uncertainty, reached an all-time high in 2025. Levels were more than one third higher than the previous peak recorded during the initial COVID lockdowns.

^{Economic Policy Uncertainty (University of Wisconsin, Stanford University), As of January 2026}

Against this backdrop, 2025 also marked a quarter century since David Swensen codified the Yale endowment model. Built on long-term investment horizons, diversification of economic risk, and substantial exposure to alternative and illiquid assets, it catalyzed what later became known as the “Endowment Model.”

The arrival of this milestone, at a time of historically high economic uncertainty, offers a timely opportunity to reflect on what has changed in the not-for-profit landscape, and which considerations matter most for investors navigating today’s volatile environment.

The structure of public equity markets has shifted materially since the creation of the endowment model. Since 2000, global market capitalization has approximately quadrupled, while the population of public companies has contracted. In the United States, for example, the number of listed firms fell from roughly 5,500 in 2000 to around 4,000 by 2020, according to McKinsey analysis.

At the same time, index concentration has increased sharply, particularly in the US, with mega-cap stocks dominating market performance. In 2025, the largest seven companies accounted for approximately 32 percent of the MSCI ACWI index. This concentration has made consistent outperformance increasingly challenging for active managers, as US technology platforms have driven a disproportionate share of US equity returns over the past decade relative to other major markets.

This was partly driven by the concurrent growth of private markets. Private equity, in particular, emerged as a viable substitute for public markets, both by actively taking listed companies private and by enabling businesses to raise capital and achieve liquidity without ever needing to list. Assets managed by private equity funds grew 15-fold from 2000 to 2022, reaching approximately $8 trillion.

Market dynamics have also been shaped by periods of pronounced speculative momentum. Certain sectors and assets have experienced rapid appreciation, often without the historical fundamentals typically used to justify exponential growth. These conditions have complicated portfolio construction decisions for active managers across regions.

Retail participation has amplified this. In 2025, retail investors represented an estimated 20 to 30 percent of market trading volume, compared with less than 10 percent a decade earlier. This shift has contributed to faster-moving trends, higher volatility in certain segments, and a market environment where sentiment and positioning can at times overwhelm traditional valuation signals.

Despite these changes, many of the core principles guiding endowments and foundations remain the same as they were 25 years ago. But while long-term investment horizons and diversification remain essential, flexibility has arguably taken on even greater significance in capturing opportunity and managing risk in today’s environment.

In 2026, this means:

1. Reviewing and managing new catalysts within equity markets

• Structure portfolios with global equity exposures to capture dispersion across geographies, sectors and currencies.
• Maintain portfolio diversification by including both high and low-valuation companies, recognizing that market performance is influenced by factors beyond valuation alone.
• Review your FX policy and increase hedge ratios/reduce USD exposure (for non-USD-based investors who invest globally).
• As uncertainty continues, consider an active structure, which could play a crucial role in managing through uncertainty.

2. Be aware of varying private market vehicles in the market

• Evaluate the full spectrum of private market vehicles to help enhance flexibility and resilience.
• Match vehicle selection to liquidity goals, using evergreen and closed-end structures strategically across liquidity tiers while being attuned to many vehicles’ untested experience through market crises.
• Assess trade-offs carefully, because evergreen funds offer access and potentially smoother distributions but may introduce performance drag, whereas closed-end funds demand pacing discipline but can capture higher illiquidity premia.
• Consider operational and governance factors, including tax, reporting and regulatory requirements, in portfolio design.

3. Applying precision in structuring hedge fund portfolios

• Focus on breadth and diversification across macro, event-driven, relative value and multi-strategy approaches designed to enable portfolios to potentially benefit from varied market catalysts.
• Allocators should prioritize unconstrained manager selection to capture idiosyncratic alpha and avoid correlation spikes in periods of stress.
• Flexible sizing and governance are important, allowing capital to pivot toward outperformers as dispersion widens.

4. Understand your needs, and structure fixed income allocations accordingly

• Core bonds have regained their purpose as sources of income, diversification and optionality but must be viewed through a forward-looking lens that anticipates shifts in inflation, rates and growth.
• Maintain flexibility in what is included in your fixed income implementation by seeking to take advantage of opportunities across duration and of quality issues across geographies.
• Develop a governance model that evaluates the return need regularly to help ensure liquid and more stable asset classes can efficiently cover shorter-term needs.
• Design smart portfolios with layered liquidity that can potentially:
• 1. Flexes with changing operational and strategic priorities
  2. Aligns with expectations under multiple scenarios
  3. Leverages higher cash yields strategically while avoiding excess/unnecessary risk