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Yale University’s ‘endowment model’ is the private equity industry’s favorite proof point for why your clients should be allocating a significant portion of their hard-earned wealth to their funds—private credit managers too.
A couple of things they tend to gloss over in their marketing materials…
– Yale and other endowments have actually been reducing exposure to private markets. In fact, Yale is said to be selling up to $6B of its PE portfolio.
– David Swensen, the architect of the Yale Endowment Model, was a strong proponent of hedge funds as part of a broadly diversified portfolio of alternative assets—not just private equity and private credit.
– He’s talking about institutional investors.
What did he recommend for individuals, Dan?
Well, I’m so glad you asked.
He advocated for a disciplined approach centered on low-cost index funds, advising individuals to avoid overly complex and illiquid alternative investments. Swensen’s rationale was that the illiquidity, fees, lack of transparency, and limited access to top-tier managers often outweigh potential benefits for individual investors.
Happy April!
Best,
Dan
Alternative Talking Points
We review the latest monthly reports and industry analyses across the private markets, boiling them down into a few easily digestible points to share with your clients. Contact us if you’d like more depth.
Hedge Funds: Trade/Tariff volatility surge widens performance dispersion as macro funds post gains
➕ The HFRI Fund Weighted Composite Index fell -1.1% in March, dragged down by equity hedge and event-driven strategies. For Q1, the index posted a narrow -0.38% loss.
➕ Macro strategies bucked the trend, with the HFRI Macro (Total) Index gaining +0.25%, led by Discretionary Thematic (+2.0%) and Multi-Strategy (+1.5%) managers.
➕ Equity Hedge strategies struggled as large-cap tech and healthcare stocks fell sharply. The HFRI Equity Hedge (Total) Index declined -1.96%, with Tech-focused funds down -6.2% and Healthcare -3.6%.
➕ Event-Driven strategies saw broad losses, falling -2.4% on the month. Activist (-6.5%) and Special Situations (-4.7%) strategies led declines. Merger Arbitrage was the lone bright spot, up +0.41%.
➕ Relative Value strategies slipped slightly, posting a -0.05% decline overall. Volatility strategies gained +1.1%, but Convertible Arbitrage (-0.75%) and Sovereign FI (-0.71%) dragged performance.
➕ Cryptocurrency hedge funds were hit hard, with the HFR Cryptocurrency Index down -7.8%. However, the newly introduced HFR Cryptocurrency-Quantitative Index gained +2.5%, suggesting opportunities in more systematic approaches.
➕ Performance dispersion widened again: top-decile funds gained +6.6%, while the bottom decile lost -10.0%. Over the past 12 months, dispersion reached 47.9%—underscoring the value of manager selection.
Private Equity: More transactions, more pressure to deploy capital.
➕ U.S. deal flow is rebounding, helped by narrowing valuation gaps and more creative structuring (e.g., deferred consideration, buyer equity). Source: Farrer & Co
➕ Dry powder pressure is building. Firms are sitting on large reserves raised pre-2023, pushing up entry multiples and risking overpayment for average assets. Source: McKinsey, Farrer & Co
➕ Fundraising is still a major drag. Global buyout fundraising fell 23% in 2024. Smaller managers continue to struggle, while capital concentrates around large firms. Source: Bain & Company, PwC
➕ Distressed infrastructure is in play. KKR’s bid for Thames Water signals growing appetite for controversial public utility assets, despite regulatory risk. Source: BBC
➕ Roll-up strategies dominate. 64% of GPs cite consolidation as the main tool for equity value creation, reflecting a lack of organic growth drivers. Source: PwC
Private Credit: Growth continues—so do risks and complexity
➕ Yields remain compelling. The “higher-for-longer” environment means forward SOFR curves still price 200–300 bps above the 2010s average. This supports continued investor interest—but some are asking whether the golden era of private credit is maturing. Source: Hamilton Lane
➕ Dealmaking is rebounding. Global M&A is up 15% year-over-year to $3.5T. Private credit is expected to ride this wave, especially in buyout financings and refinancing activity that had been delayed. Source: Macquarie via Alternative Credit Investor
➕ Bank–direct lender partnerships are scaling. Citi/Apollo, Webster/Marathon, and AGL/Barclays are just a few examples of new hybrid models reshaping credit origination and distribution. Source: Akin Gump
➕ Asset-based finance is breaking out. Specialty areas like litigation finance, NAV lending, and royalty-based structures are gaining institutional traction. The asset-based market could reach $8T by 2028. Source: Akin Gump
➕ Supply and demand dynamics are shifting. The BIS finds that both regulatory-driven supply and borrower demand shocks are driving volatility. Future growth may depend more on credit discipline than structural tailwinds. Source: BIS Quarterly Review
➕ Defaults are rising, but losses haven’t followed—yet. Fitch reports a sharp uptick in private credit defaults in 2024, while Moody’s sees elevated U.S. corporate default risk heading into 2025. So far, lender losses have remained limited, but the cushion may not last. Source: Moody’s, Fitch Ratings
Commercial Real Estate: $600B in debt is coming due—most properties won’t refinance cleanly.
➕ Office sector stress is easing, but recovery is uneven. U.S. net absorption losses narrowed significantly in early 2025, but vacancy rates remain elevated at ~14%. Prime assets are holding up; secondary properties continue to struggle. Source: NAR
➕ Refinancing risk is still high. Roughly $600 billion in U.S. commercial real estate loans are maturing in 2025, and many borrowers underwrote deals at 3–4% rates. Financing costs remain a key concern. Source: Deloitte
➕ Conversion strategies are expanding. Office-to-residential and mall redevelopment projects are gaining traction, especially in dense markets. But zoning, capital costs, and hybrid work trends present major execution risks. Source: HKLaw, NAR
➕ Private equity is circling distressed opportunities. U.S. managers are targeting asset-backed platforms and special situations in sectors like infrastructure, data centers, and life sciences. Source: Goodwin Law
➕ Investor sentiment is improving, but cautiously. Most CRE activity remains concentrated in industrial, multifamily, and select retail—while capital continues to avoid challenged office segments and marginal markets. Source: CBRE, Deloitte
Artificial Intelligence: The tools are changing rapidly—your practice needs to be ready to change too.
➕ Microsoft’s Security Copilot Expansion: Microsoft launched new AI security agents capable of autonomously triaging phishing alerts and other cyber threats. This marks one of the first large-scale, enterprise-grade deployments of agentic AI, signaling a shift toward more autonomous, task-oriented AI systems. Source: Bastakiss
➕ AI Model Performance Gap Shrinks: According to Stanford’s 2025 AI Index Report, the performance difference between the top and tenth-ranked language models has dropped to just 5%, down from 12% a year ago. Open-weight (open-source) models have nearly matched closed models in performance, with only a 1.7% gap remaining. Source: Stanford
➕ EU AI Data Investigations: Regulatory scrutiny is increasing, with the EU formally investigating X (formerly Twitter) over its use of public posts to train AI, highlighting ongoing concerns about data privacy and AI training practices. Source: Stanford
➕ Open Source Models for Enterprise: With performance improving, open source models are now a viable solution for helping firms reduce the risk of Vendor lock-in and IP leakage. Source: Forbes
Worth your time
Our monthly recommendation of books, articles, research, and announcements we found interesting, important, or just plain entertaining enough to share. Sometimes, we’ll have a lot—other times, not so much. The objective is to share things that might be useful or interesting for your clients, not filler.
➕ Big Funds, Small Gains: Rethinking the Endowment Playbook: Enterprising Investor. Next time, they try to sell you the ‘Institutional Model’ and then their latest Private Equity or Private Credit fund, send them this. As always, thanks to Richard Ennis, CFA, for the thoughtful work.
➕ State Street Private-Debt ETF Scores No New Flows in Weeks: wealthmanagement(.)com. And we quote, “ETFs, which trade on a public stock exchange, have proved hard to implement, given the natural mismatch between the underlying illiquid private debt assets and liquid nature of the wrapper.”
➕ Large language models can do jaw-dropping things. But nobody knows exactly why: MIT Technology Review. Despite their impressive performance, the underlying mechanisms that enable LLMs to achieve such results remain poorly understood. As Mikhail Belkin, a computer scientist at UC San Diego, puts it: “Our theoretical analysis is so far off what these models can do. Like, why can they learn language? I think this is very mysterious.”
Disclosure:
This newsletter is for informational purposes only and does not constitute investment advice. All investments, including those in equity, debt, and alternative assets, carry certain risks, notably potential liquidity and transparency issues associated with many private investments. These risks should be considered in the context of an individual investor’s objectives and risk tolerance.
The views expressed are those of Third Wire as of the date of publication and are subject to change. The information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed.
Past performance is not indicative of future results. Investors are advised to consult with qualified financial, legal, or tax advisors before making any investment decisions. Third Wire does not accept liability for any loss or damage arising from the use of this newsletter.
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