Yale University (Trades, Portfolio) is quietly doing something it's never done before—selling off $2.5 billion in private equity stakes. For decades, the Ivy League giant was the poster child of David Swensen's endowment strategy: ditch stocks and bonds, embrace illiquidity, and go all-in on alternatives. But the deal—nicknamed “Project Gatsby”—signals a shift. With private equity distributions lagging, interest rates still elevated, and a lack of exit activity in sight, secondhand buyers like Lexington and HarbourVest are now circling the portfolio. The discount is expected to land under 10%, a relatively small price for Yale (and others) to finally get some liquidity back on the books.
MIT, Notre Dame, and the University of Illinois are also testing the waters, exploring secondary sales of their own. Some have already pulled back on new commitments. What's driving this sudden rethink? A wave of political and financial pressure. Proposed tax hikes could raise levies on endowment investment income from 1.4% to as high as 21%, hitting schools like Yale, Harvard, and MIT the hardest. Trump's threats to strip tax-exempt status—and the federal pullback on university funding—are turning up the heat. And with distributions drying up from private equity funds, these endowments are facing tough choices: sit tight and hope, or sell now and rebalance.
Even if Yale still holds nearly $20 billion in PE and VC, this move sends a signal. The Swensen model worked brilliantly for decades—but even Swensen himself warned that it could crack under liquidity stress. With a study showing alternative-heavy portfolios underperforming a simple stock-bond mix by 2.4 percentage points over 16 years, more CIOs may rethink the cost and complexity of “dark corner” investing. Simplicity, liquidity, and adaptability could be making a comeback. And Yale's sale may be the first domino to fall.
