Yale seeks to sell billions in private equity investments as political pressures from Trump mount

Liese Klein, The Hour, Norwalk, Conn.Hour

Apr. 24—In a sign of the headwinds facing universities, Yale University is seeking to sell a major chunk of its private equity holdings, a class of long-term investments that helped grow its endowment to $41.4 billion.

"The university is exploring a sale of private equity fund interests and is being advised by Evercore in a process that has been in the works for many months," Yale spokesperson Karen Peart said Monday. "We remain committed to private equity investments as a major part of our investment program and continue to make new commitments to funds raised by our current investment manager."

The university's comments came in response to a report on the Secondaries Investor website that Yale was shopping up to $6 billion of its private equity holdings in the secondaries market, partially in response to actions by President Donald Trump.

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The secondaries market is where investors sell private equity holdings at a discount before the investments would naturally mature. Private equity investments involve buying into specialized funds that buy and sell other companies, resulting typically in higher profits than traditional stocks and bonds, but over a longer time frame and requiring larger stakes.

Because of recent ups and downs in the stock market and Trump's effort to freeze or cut federal funds, Ivy League universities like Yale and other institutions are actively seeking liquidity — or ready cash, according to experts. Their billion-dollar endowments are mostly tied up in long-term investments like private equity or are held in restricted donor funds, so they can't simply withdraw the cash needed to make up for cuts or pay for court battles.

Harvard University, embroiled in an escalating public fight with Trump, announced earlier this month it would issue $750 million in taxable bonds to bolster its operating funds.

In its bond announcement, Harvard officials said: "While the financial impact on the university resulting from the totality of potential developments at the federal level cannot be quantified at this time, any such developments may, directly or indirectly, have a material adverse effect on the current and future financial profile and operating performance of the university."

Poor returns fuel 'perfect storm'

Political pressure is only part of a "perfect storm" currently impacting major private equity investors like Ivy League universities, said Michael Markov, CEO of quantitative analysis firm Markov Processes International. The company researches financial data on major university endowments to identify trends as part of its analysis of institutional investor strategy.

Private equity returns have been down since 2022 as deals have lagged, with profits down to one-third of their former levels in some cases. Trump's actions are adding to a liquidity squeeze as universities seek to continue operating, Markov said.

"It's a perfect storm to apply pressure on these endowments," Markov said. "They'll have to come up with the money, but the money is not there."

Yale's endowment in particular is heavily weighted toward private equity and venture capital compared to other top universities, according to Markov's analysis, at 45% of its total portfolio. In typical times, the high profitability of the investments outweighed the risk, but recent years have seen more challenges in the sector.

"They needed a push from the White House to realize that they're sitting on a time bomb," Markov said.

Adding to the stress on Ivy League endowments in particular is the impact of divestment movements in recent years that have pressured universities to cut back on investments in the energy sector due to climate concerns, Markov said. Yale announced it would restrict energy investments in 2021 and scaled back its holdings in fossil fuel producers, cutting its stakes completely in oil giants Chevron, Exxon and ConocoPhillips.

Energy investments add to a portfolio's diversification and can offset declines in private equity and the stock market, Markov said.

"We can just see how the risk ballooned without proper diversification," Markov said.

Endowment returns reflect holdings

The Yale endowment's commitment to private equity and venture capital contributed to relatively poor performance in its most recent financial report, released in October. Experts blame interest rates and other financial market conditions for fewer IPOs and other "exits," or profit-making opportunities for private equity funds. Yale's 5.7% investment return for 2024 marked a decline from its 9.5% annual average for the decade prior.

"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 Chief Investment Officer Matt Mendelsohn said.

Any pullback from private equity is significant as Yale helped pioneer university investments in the sector under celebrated investment manager David Swensen.

Swensen, who died in 2021, started moving Yale's funds to alternative investments like private equity and venture capital in the 1990s, seeking higher returns than traditional stocks and bonds by investing over a longer time horizon. Many Ivy League universities now employ Swensen acolytes to manage their endowments and the strategy has also been adopted by major institutional investors, such as large pension funds.

Yale has not given up the private equity investment class completely, according to the university. In addition, the investments currently on the market won't be sold unless an acceptable price is agreed upon.

"We continue to actively seek new relationships with private equity firms in the endowment," Peart said.

Private equity still promises results

Yale's actions likely represent a "tactical rebalancing" of its portfolio but hardly a retreat from private equity, said Tim Yates, President and CEO of the Commonfund OCIO division, an asset management firm that works with nonprofits. University endowments of all sizes need high returns to support their operations and they work with long time horizons, adding to the appeal private equity investments.

"Trying to generate that type of return and maintain support — in the case of Yale, meaningful support — to the operating budget in perpetuity requires an endowment portfolio to take risk," Yates said.

With anemic returns in recent years, the secondaries market has grown significantly to allow private equity investors to cash out early in times of need. But even as Yale looks to sell some holdings, it is actively seeking new private equity investments, and most institutional investors are committed to the asset class, Yates said.

The private equity market has also evolved to be more specialized, with funds focusing on specific industry sectors or subsectors, Yates said. Private equity real estate firms are increasingly involved in deals involving cutting-edge technology like data centers and cold-storage warehouse space, he added.

"There's always new opportunities," Yates said. "It's incumbent upon us and Yale and everybody else to find the very best managers to exploit and take advantage and hopefully make great returns off of those new strategies."