Endowments & Foundations: Reframing Private Markets 

For Endowments and Foundations (E&Fs), private markets have been a cornerstone of long-term performance. In many portfolios, these allocations stretch to 30% or more, built on a philosophy of capturing illiquidity premiums, enhancing diversification, and investing in structural growth drivers.

But after several years of headline volatility, muted distributions, and increasing scrutiny, investors are asking sharper questions. What role should private markets play going forward? How should strategies evolve in the face of macro uncertainty and shifting liquidity dynamics?

While recent years have been challenging, we believe private markets remain a core component of long-term portfolio construction. Performance cycles are part of the landscape and areas of private markets continue to offer structural advantages when approached thoughtfully.

Performance data over multiple periods reinforces this. Although recent vintages have experienced slowed distributions and valuation recalibrations in areas such as real estate and venture capital, our view is that the long-term return premium across private equity, private debt, real estate and infrastructure remains intact. That said, new underwriting assumptions may be required. The distribution slowdown in private equity, for example, has been pronounced in 2019–2021 vintages, but earlier vintages continue to meet or exceed modelled expectations. 

Private programs need to be dynamic. The current cycle has revealed the fact that private market programs can bring about inconsistent years and returns may be driven by abnormal distribution patterns. In some cases, institutions have relied too heavily on prior vintages' liquidity assumptions that are no longer holding true.

Looking forward, programs should be re-underwritten utilizing a revised set of base cases:

• Distributions may remain below trend in certain segments (e.g. venture capital, office-heavy real estate).
• Denominator effects will continue to distort allocations, particularly for mature portfolios.
• Reinvestment pacing must adapt to reflect both cash flow realities and forward-looking opportunity sets.

Rational re-underwriting requires segmenting private markets into their constituent exposures and understanding how each is behaving under current and potential macroeconomic conditions. Private equity buyouts are not venture capital. Real estate logistics is not office. Manager selection remains paramount, with dispersion in terms of manager’s performance being a persistent trend across private market asset classes. 

Diversification has often been approached through checklists: “Do we have venture? Real estate? Infrastructure?” But different institutions need different solutions. Some may benefit from framing private market exposure based on need or goal. Some may seek allocations to real assets that mitigate inflation risk or support spending requirements. Others may seek the yield profile of private credit or the growth potential of co-investments in lower middle-market buyouts.

Diversification, in this context, isn’t about “owning everything.” It’s about understanding what’s additive and what’s not, to your portfolio. 

Periods of dislocation often bring opportunities to those positioned to seize it. That’s what we are seeing today in the growth areas of secondaries and co-investments. LPs facing liquidity constraints are becoming motivated sellers to the secondary market, while a growing population of GPs are exploring structured liquidity solutions such as continuation vehicles to retain ‘trophy assets’.

For allocators with dry powder this presents a clear opening to step in as liquidity providers. In continuation vehicles, for example, alignment is high, transparency is deep, and pricing often reflects short-term dislocations rather than long-term value. Co-investments, meanwhile, can offer fee-efficient access to high-quality transactions alongside trusted managers, with the potential to enhance both returns and governance oversight.

Beyond today’s tactical considerations lies the structural innovation of private markets. Semi-liquid vehicles are gaining traction in asset classes like private credit, and evergreen funds are expanding access to more investors. These innovations are direct responses to real frictions: capital inefficiency, cash flow mismatches, and outdated vehicle design.

But innovation isn’t just about vehicles. It’s about how institutions use them. Leading investors are rethinking portfolio construction through a total portfolio lens, where liquidity, risk, and return objectives are reconciled across private and public exposures. Private credit allocations, for example, must be understood in the context of broader credit risk.  

Private markets should not be managed in isolation. They must be integrated, deliberate, and aligned to institutional objectives.

Concerns are not unfounded. Uncertainty in the short term exists. But E&Fs remain long-term focused institutions with the ability to cut through the noise, recalibrate expectations and realign strategies to navigate a more complex and nuanced private market environment.

Our approach is anchored around four enduring principles: re-underwrite rationally, diversify deliberately, lean in not out of opportunities created by this current environment, and utilize industry innovations to future-proof portfolios. Each principle offers a practical lens through which investors can evaluate private market exposures and identify opportunities amid uncertainty.