The endowment model, built around a heavy tilt toward private and illiquid assets, made the great university funds the envy of institutional investing for two decades. That model is now being tested as frozen exits and slow distributions strain the very liquidity the approach always depended on.
The bet was that endowments, with their infinite horizons, could harvest an illiquidity premium that shorter-term investors could not. The bet largely paid off. But a prolonged freeze in exits has reminded even the most patient investors that illiquidity has a cost as well as a premium.
The liquidity reckoning
When distributions slow and the endowment still has to fund its spending commitments, the illiquidity that once looked like an edge becomes a constraint. Some funds have turned to the secondary market or to borrowing to bridge the gap, tools their forebears rarely needed.
The model is not broken, but it is being refined. The endowments navigating this best are the ones that planned their liquidity for a frozen scenario rather than assuming exits would always arrive on schedule. The illiquidity premium is real, but so is the illiquidity.