As the private-equity exit backlog grows, the lack of distributions is hitting endowments particularly hard.
A 2025 NACUBO-Commonfund Study of Endowments shows that of endowments surveyed, 54.5% of equity allocations were comprised of private/alternative strategies. The liquidity crunch comes as these institutions face higher costs, reduced federal funding, lower donations, inflationary pressures, shrinking enrollments and, for some large endowments, higher taxes under the One Big Beautiful Bill Act of 2025.
Private equity and venture capital remain important to long-term portfolio growth, say endowment CIOs and OCIOs, but these investors are becoming more selective in what they buy, as a lack of distributions limits new allocations. The new financial reality for endowments means reviewing how they balance their liquidity needs while investing for the long term.
‘A Failure of Modeling’
Joe Lee, CIO and president of the $1 billion Abilene Christian Investment Management Company at Abilene Christian University, says the endowment has about 30% of its portfolio allocated to private equity. Abilene’s portfolio also includes a higher allocation to energy-focused private managers than its peers, reflecting the endowment’s Texas location.
The slow-down in exits has exposed that, collectively, endowments have been too reliant on historical distribution patterns and on what general partners told investors about timelines and when to expect distributions, says Lee, who now expects lower distributions.
“What we know now is that it was a failure of modeling,” he says. “I don’t think it was prudent ever, and that includes going forward, to be in a situation where you’re investing so aggressively in illiquids that you can’t accommodate changes relative to the model.”
The Public Equity Alternative
At Northwestern University, the endowment’s largest holding is public equity, at 31.8%, above its 29% target allocation. Its private equity investments are slightly underweight at 14.5%—while venture capital is slightly overweight, at 21.3%. Those targets are 17% and 20%, respectively.
The strong returns in public markets in the past three years allowed Amy Falls, CIO of Northwestern University’s $15.3 billion endowment, to harvest gains that somewhat mitigated the lack of distributions from private equity holding. “If the public markets were down 20% instead of up 20%, it would be very different,” she says.
Anne Duggan, managing director, client CIO group at endowment and foundation specialist firm TIFF Investment Management, said endowments’ changing financial circumstances—particularly among the largest, which have the most exposure to illiquid investments—mean these asset owners are changing their manager line-ups and asset allocations. The changes include trimming or redeeming the marginal actively managed, and often tax inefficient, liquid managers to fund liquidity needs once liquidity is exhausted, she wrote in an email to CIO.
Impact on New Investments
McKinsey & Company’s Global Private Markets Report 2026 stated that the average holding period in 2025 for a portfolio company in a private equity fund was 6.6 years. The historical average is closer to five years, says Mark Hoeing, president and CEO of CF Private Equity. The long holding period and low distributions have a ripple effect; more institutional investors are cash-flow negative, as they receive more capital calls than distributions.
This reality limits the new allocations or investments they can make. “Now many institutions are slowing or resizing their commitments so that they can stay within their targets,” Hoeing says.
The distribution drought has not undermined institutional investors’ belief in private equity’s illiquidity premium. It has, however, reinforced their belief that being choosy matters far more than simply owning the asset class, said Brendon Parry, head of private markets and deputy CIO at TIFF.
“The premium needs to be earned, and the dispersion between managers is likely to become even more important,” Parry said in an email.
Falls agrees that private equity and venture capital both have roles to play, and investments in venture capital have shown that “new, good inventions do power returns.” Nevertheless, she is changing her commitment model for private equity. “Even if I don’t change my targets, I’m going to change my commitment case. What do I feel like I have to get in exchange for giving up flexibility? What else do I have to do to generate liquidity?”
Falls currently has 5% of the endowment’s portfolio invested in fixed income, mostly shorter-duration U.S. Treasurys. As a result, Northwestern’s cash position has risen to about 3.5% from 1% previously—a level she predicts will stay that way until about January.
Where Buyers See Value
TIFF still sees value in the lower middle market and from independent sponsors, where markets are less efficient, valuations are more reasonable, and individual managers can meaningfully influence business outcomes, Parry wrote.
At Abilene Christian, Lee is also being choosy with his private equity allocations. He is looking at commercial real estate and distressed or special-situation corporate private equity, given both the endowment’s budget and his background as a private equity investor.
“Ultimately, our North Star is we want private equity managers that will actually state that they anticipate they’ll generate north of [a] three times net [multiple on investment capital.] Believe it or not, people are not comfortable saying that,” he says.
He does not anticipate that the cycle will turn around anytime soon. “These are super-long-tailed things, so I don’t anticipate any sort of right balancing of this marketplace for at least several years,” Lee says.
Another way the cycle can play out, Lee says, is for returns to stay low for many years and companies eventually grow into their valuations.
TIFF’s Parry concurred that more time might be appropriate, but time also has costs, and “extending a hold doesn’t automatically make an investment more valuable.”
Falls suggests that private equity managers’ ability to extend the holding period for portfolio companies when their performance is poor can come at a time when investors want their money back. This extended duration is not unlike negative convexity in bonds.
It makes liquidity harder to forecast and adds risk to the asset class, which in turn means investors need even higher return premiums to offset the negative convexity of the asset class. “I think that’s been made very, very clear in the last few years,” she says.
Tags: cash, Commonfund, Endowments, exits, Fixed-Income, McKinsey & Company, NACUBO, Northwestern University, Private Equity, TIFF Investment Management