A decline in long-term returns, driven by an overcrowded private equity market, has compelled Princeton University to significantly reduce the long-term return expectations for its $36 billion endowment fund. This development signals a severe challenge to the long-standing high-yield investment model that heavily relies on illiquid assets and has directly triggered internal university spending cut initiatives.
According to a report from the Financial Times on February 3rd, Princeton University President Christopher Eisgruber stated in an annual letter released this Monday that "market fundamentals are changing" due to excess capital chasing a limited number of investment opportunities, which will lead to a persistent decline in long-term returns. Consequently, the Princeton endowment has lowered its return expectation from 10.2% to 8%.
The financial repercussions of this adjusted forecast are substantial. Estimates suggest this will reduce the endowment's asset size by approximately $11 billion over the next decade, a figure that surpasses the total raised by the university's last two major fundraising campaigns combined. In response, Princeton has sought to implement institution-wide spending reductions of 5% to 7% over the past twelve months. Eisgruber explicitly stated that the long-term decline in endowment returns will necessitate "more targeted and sometimes deeper cuts" in the coming years.
It is noteworthy that many institutional investors, including pension funds and university endowments, previously rushed into the private markets without fully assessing the risks. As Britt Harris, former Chief Investment Officer of the University of Texas/Texas A&M Investment Management Company, remarked: "They ran into a crowded parking lot, and now nobody can get out."
The era of double-digit returns has come to an end. Princeton's move reflects a broader reassessment of the long-term market environment by institutional investors.
Britt Harris pointed out that in the current climate, "it is almost impossible to hold a diversified portfolio for a very long period of time and achieve a double-digit return objective." He believes Princeton is merely "returning to the mean."
The Princeton endowment had greatly benefited from aggressive bets on private equity over past decades. As of June 2025, private equity constituted more than two-fifths of its investment portfolio.
Eisgruber explained that this strategy worked previously because elite universities like Princeton had "access to exceptionally attractive investment opportunities." However, as more investors flooded into the sector, these advantageous conditions have largely disappeared.
In the short term, the high-interest-rate environment has suppressed initial public offering (IPO) and merger and acquisition activity, slowing the pace of exits. Over the long term, an oversupply of capital has intensified competition for deals, directly compressing return potential.
Performance declines underscore this worrying trend. Eisgruber revealed that while the endowment hit a record high of 47% in 2021, the subsequent years represented "one of the worst periods in the university’s history" for returns. This marks the first time the organization has reported negative returns for two consecutive years.
Viewed from a longer-term perspective, the situation is equally concerning. The endowment's 20-year rolling return rate has steadily decreased from over 14% in 2005 to under 10% by 2025. Confronting this trend, Eisgruber candidly admitted, "We may be too pessimistic, but it is also quite possible we are still too optimistic."
The case of over-concentration in private equity serves as a stark warning. For Princeton University, which relies heavily on its endowment for operations, lowering return expectations has profound implications for institutional development, particularly against the backdrop of reduced federal funding during the Trump administration.
Britt Harris warned that Princeton's overexpansion into private equity offers a lesson for other university endowments. "We took a good thing too far, and now we have to pull it back." This case demonstrates that the once-sacrosanct "Yale Model"—a strategy of heavily weighting illiquid assets to capture high premiums—is now undergoing an unprecedented stress test.
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