College Funding Is Getting Cut - Here’s Why That Matters to Your Portfolio

When colleges lose government funding, they don’t just dim the dorm lights - they start selling off private assets in their endowments, and those moves can ripple down into our portfolios too.

Yale is considering selling off up to $6 billion of their private equity portfolio. That includes stakes in things like real estate, venture capital, and other private investments. Why? Because they’re facing political pressure and potential funding cuts from the federal government - and they need to make up the shortfall by selling assets from their endowment.

Here’s why that matters to us: 

Institutions Like Yale Invest in the Same Stuff We Do

As an investor in REITs, real estate syndications, and other private equity, I know that many of the deals I’m in also have big institutional partners behind the scenes. That’s common - university endowments often invest in large real estate assets alongside private investors like you and me.

And I’ll be honest - I have often wanted to invest in deals that had institutional backing. It felt like a stamp of approval, a sign that the deal was more solid than some smaller retail operators. But this can cut both ways; if institutions need cash, they can force a sale - even if it’s not the best time for the rest of us.

If institutional investors suddenly need liquidity and start selling their shares on the secondary market, it could cause valuations to fall, and syndication sponsors might be forced to sell at a significant discount in a down market just to appease these institutional backers. That directly impacts our potential profits and the timing of our returns.

On the flip side, this could also create discounted buying opportunities as these assets are offloaded. These university endowments are essentially becoming ‘distressed sellers’, willing to sell with lower terms and more concessions just to generate needed liquidity. So this could be good news if you’re on the buying side! 

What This Could Mean:

• If you’re currently in private equity, this could lead to earlier-than-planned exits or reduced profits if assets are sold into a soft market.

• If you’re considering investing in private equity, this could be an opportunity to buy into a good deal at a good price.

• If your retirement funds are in private equity funds or REITs, you might see some volatility if there’s a rush of institutional selloffs.

• If you're just getting into private equity investing, this is a great reminder to understand who else is investing in a deal - and what kind of power they might have.

  
  

What You Can Do About It:

• Review the deals you're in: If you’re in any private real estate investments or funds, check if there are institutional partners and what exit provisions exist.

• Ask these questions when investing: When reviewing new investments, ask: “What happens if an institutional partner wants out?” and “How are secondary sales handled?”

• Diversify across liquidity: Not everything you invest in has to be long-term or illiquid. Having a mix of short-, mid-, and long-term investment vehicles helps you stay flexible.

• Keep your radar up: This is a reminder that big-picture financial and political decisions can trickle down in unexpected ways (both positive and negative!). 

We’re in an interesting season of investing. Institutions are shifting. The markets are moody. But if we stay aware and keep asking good questions, we stay empowered.

If you want to take advantage of this down market to pick up some distressed deals, check out our Real Estate: From Curious to Confident Course to learn how to get started!