By Ian Macpherson, CFA, CAIA & Timothy Jarry, CFA, CPA

Senior Principals/Consultants

With fiscal year ’25 closing, we wanted to offer a quick snapshot of the themes we believe are most relevant to endowment clients heading into a new fiscal year. While more detailed analysis will follow in our comprehensive fiscal year report, we wanted to share early observations, supported by recent market data and our ongoing client discussions.In this report, we highlight areas of meaningful performance dispersion, revisit the benefits of diversification and rebalancing, and flag policy developments with potential implications for spending and liquidity. While every institution’s experience will vary, these themes offer a starting point for engagement and positioning for the year ahead.

Fiscal 2025 Observations

Public Equities Outperformed Private Markets

Preliminary results suggest a wide performance gap between public and private markets this fiscal year. U.S. equities delivered strong double-digit returns, while private equity appears to have ended in the mid-single digits—though final numbers are still pending.

Recent headlines have focused on increased private equity secondaries activity, but the underlying drivers are more nuanced. Slower realizations and distributions, strategic rebalancing, liquidity constraints, and governance shifts are all contributing factors.  These moves should not be viewed as distress-driven sales, but rather a reflection of thoughtful, multi-faceted decision-making in a slower private market environment.

Public Market Performance – More Than a Tech/AI Story

While outsized returns in technology explained nearly half of U.S. equity gains during fiscal 2024, market leadership broadened throughout this fiscal year.  All sectors aside from materials, energy and health care experienced  double-digit gains for the fiscal year with financials  proving to be the new leading sector.  New emerging themes such as power generation and a steepening yield curve, along with relatively more attractive valuations, drove gains in a broader range of sectors.

Smaller Endowments Likely to Outperform Larger Peers, Again

Preliminary data suggests that smaller endowments outperformed their larger counterparts for the third consecutive fiscal year. This outcome appears closely tied to asset allocation differences—specifically, smaller institutions tend to hold higher allocations to public equities and lower exposure to private investments.

While private markets remain a long-term value driver, they faced headwinds this year, including muted distributions, fewer realizations, and lower levels of activity. In contrast, public equity markets—particularly U.S. stocks—posted strong gains, especially in the final quarter. With greater liquidity and more immediate market exposure, smaller endowments were better positioned to participate in the late-year rally.

International Equities Reassert

For the first time since FY 2017, non-U.S. equities outperformed their U.S. counterparts for the fiscal year. The outperformance was driven by a combination of currency tailwinds, more attractive valuations, and broader economic stabilization across regions like Europe and parts of Asia.

While global diversification can test patience, this year serves as a reminder of its long-term value. Some portfolios that leaned into international markets during periods of U.S. dominance may now see the benefits, particularly those that rebalanced or added to international managers amid weaker performance in prior years.

Rebalancing Matters

This fiscal year offered a powerful reminder of the benefits of disciplined rebalancing—especially during periods of uncertainty. A significant portion of market gains came late in the fiscal year off of the April lows, and portfolios that added risk during earlier periods of weakness likely saw outsized benefits. Even simple hypothetical rebalancing scenarios illustrate how opportunistic moves—such as increasing equity exposure during fiscal Q3/Q4 volatility—would have meaningfully enhanced full-year results.

In a year marked by volatility and increased dispersion, thoughtful rebalancing proved to be a quiet but powerful contributor to performance, reinforcing the role of policy discipline in volatile markets.

Forward-Looking Considerations

Policy Considerations on the Horizon

With the new tax and spending bill signed by Congress, we’re monitoring potential implications for endowment clients. Provisions around taxation, spending, and education-related funding could impact liquidity planning, particularly for institutions facing tuition or enrollment pressures. While the specific impacts remain to be seen, this moment presents an opportunity to highlight our team’s ability to support policy modeling and scenario planning.

Clients with questions on how legislative changes may affect excise taxes, asset drawdowns, or budgeting assumptions are encouraged to connect with their investment team in the weeks ahead.

Portfolio Management – Stay Vigilant

Clients continue to rely on us not just for asset allocation guidance, but also for counsel on portfolio implementation. Whether supporting rebalancing decisions, managing cash flows, or helping execute private capital pacing strategies, our investment teams are engaged across every aspect of the portfolio.  With heightened political and economic uncertainty heading into fiscal 2026, we believe it will be critical for institutions to maintain a strong handle on liquidity and look for any potential opportunities to rebalance.

Through PrimePlus®, clients benefit from up-to-date performance and private market detail, while our dedicated consultants and analysts help translate market dynamics into actionable strategies. As fiscal year-end reporting and planning cycles begin, we stand ready to assist with performance discussions, liquidity reviews, and policy updates.

We’ll follow up with our full-year analysis in the coming weeks.  In the meantime, please reach out to your investment team if you have questions or would like to discuss preliminary results in more detail.

 

Indices referenced are unmanaged and cannot be invested in directly.  Index returns do not reflect any investment management fees or transaction expenses. All commentary contained within is the opinion of Prime Buchholz and is intended for informational purposes only; it does not constitute an offer, nor does it invite anyone to make an offer, to buy or sell securities.  The content of this report is current as of the date indicated and is subject to change without notice.  It does not take into account the specific investment objectives, financial situations, or needs of individual or institutional investors. Information obtained from third-party sources is believed to be reliable; however, the accuracy of the data is not guaranteed and may not have been independently verified.  Performance returns are provided by third-party data sources.  Past performance is not an indication of future results.