Author: Amy Paterson

In September 2025, TIFF Investment Management hosted our inaugural Capital Connections event at the Boston Harbor Hotel—an invitation-only gathering designed exclusively for independent sponsors, managers, leading E&F investors, and TIFF Board Members. TIFF has been making direct investments alongside Independent Sponsors since 2014 and remains an active participant in this growing area of the Lower Middle Market. We were thrilled to host this event as a way to spark candid conversations, share ideas, and strengthen long-term partnerships.

The program began with a two-hour closed-door educational session led by InRider Partners, where independent sponsors engaged in interactive discussions on go-to-market and fundraising strategy. Key takeaways included:

• Market your investments effectively: Clearly articulate Why You, Why Your Fund, and Why Now. With investors, first impressions matter—and your materials must speak for you even when you’re not in the room.
• Position with clarity and differentiation: In a crowded marketplace, memorable points of differentiation and a concise strategy statement ensure your edge stands out—because every word counts.
• Plan for a strong fundraise: Success depends on preparation. Strong closings balance timing and amount, and the best GPs plan early, knowing scrutiny only intensifies with each subsequent investment and fund.

Building on these insights, the evening also highlighted broader themes shaping today’s investment landscape:

• Lower Middle Market Opportunity: TIFF’s conviction in the lower middle market remains stronger than ever, with compelling opportunities for high real returns.
• Fundraising Fundamentals: Success with institutional LPs requires thoughtful preparation, positioning, and relationship-building—not just a strong strategy.
• The Power of Partnership: Enduring relationships across the TIFF community—sponsors, managers, clients, board, and friends—remain central to our mission of generating returns and creating lasting impact.

We extend our gratitude to all who contributed their expertise, creativity, and partnership to make this evening possible. We look forward to hosting Capital Connections as an annual event, and invite you to reach out to learn how you can be part of the next event.

The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.

Executive Summary

• U.S. exceptionalism remains intact: We continue to see the U.S. as the world’s economic leader and believe equities remain the most resilient long-term store of value. We are mildly underweight bonds (both notional and duration-adjusted) given fiscal concerns.
• What other markets teach us: Argentina and Turkey’s stellar local-currency returns are not signs of economic health; currency depreciation tells the fuller story. When translated to USD, their markets no longer outpace the U.S./ACWI, yet equities there still delivered positive real-asset exposure through turmoil.
• Deficits and dollar risk warrant attention: The U.S. must sell roughly $2T of new debt each year. If foreign demand wanes, rates could rise and the dollar could weaken. That would slightly reduce the appeal of U.S. stocks for foreign buyers and could pressure bonds.
• Practical safeguards: Sensible steps include reviewing dollar exposure, maintaining global diversification, and holding proven real-asset hedges like gold; bitcoin may also play a limited role for some. Even so, owning equity remains the most universal hedge against inflation and currency decay.
• Current positioning: After ~30% gains from April lows, we are at target equity exposure and carry modest equity puts as inexpensive insurance into typical September–October chop.

U.S. Exceptionalism, Risks, and the Case for Equities

Despite unsettling headlines, we believe United States exceptionalism endures. As we wrote last quarter, we believe the U.S. will remain the economic leader of the world for the foreseeable future and that leadership will continue to translate into strong long-term returns. While U.S. fiscal deficits and potential pressure on the dollar deserve attention, and those concerns cause us to be mildly underweight bonds (on both a notional and duration-adjusted basis), we still see equities as an effective and resilient long-term store of value.

Lessons from Abroad

Below is a table of the best-performing stock market indices over the past 20 years, with returns denominated in local currency. For comparison, we have also included the S&P 500 and the MSCI All Country World index (both denominated in U.S. dollars). As shown in the table below, ACWI and the SPX have produced compound returns over that stretch of 8.4% and 10.0%, respectively, which is better than most investors expect going forward.

Net Total Return Local Index (Net of Dividends) Ended July 31, 2025

The two top-performing markets on this chart, Argentina and Turkey, have significantly outperformed the global and U.S. benchmarks, but their story is not one of economic strength.

Argentina’s experience is instructive. Chronic fiscal deficits, runaway inflation, and repeated currency crises drove the peso from roughly 3 per U.S. dollar to roughly 1,400 to 1! Over the past 20 years, living standards have fallen sharply, savings have been destroyed, and confidence in the currency has evaporated. In recent years, the peso lost nearly all credibility as a store of value, with many Argentines preferring to transact in U.S. dollars or other hard currencies whenever possible. This cycle of crisis and inflation repeated multiple times over two decades, preventing lasting stability and demonstrating the importance of strong fiscal and monetary institutions for currency stability.

The U.S. Dollar and Deficit Risk

However, the U.S. is not Argentina. Our institutions are stronger, our economy far more dynamic, our currency is still the world’s reserve, and most major commodities are transacted predominantly in U.S. dollars. That said, persistent deficits create risks. The U.S. government must sell roughly $2 trillion in new debt each year. If foreign demand weakens, higher interest rates and downward pressure on the dollar could follow—reducing the appeal of U.S. debt and eroding purchasing power for bondholders.

The chart below shows the long-term trend of the U.S. dollar (with DXY measuring its general international value by averaging its exchange rates against major world currencies). Today the dollar sits near its long-term average value versus major peers, suggesting to us that the U.S. dollar is somewhere near fairly valued. Confidence remains solid, but fiscal discipline will matter.

We are concerned that if the fiscal situation is not addressed, three impacts may follow. First, the U.S. dollar could depreciate, which would imply that we, as global investors, should increase our international holdings—a step we have not taken to date. Second, the U.S. stock market could become marginally less attractive as foreign investors worry about stock market gains being offset by currency losses. Finally, bonds could sell off, in some cases materially.

Ways to Try and Safeguard Your Capital

Investors do have potential shelters to turn to. Throughout history, investors have looked to real assets when currencies waver. Gold, for example, has risen nearly ninefold over the past 20 years, roughly matching the performance of U.S. stocks. Bitcoin, though newer and more volatile, has also gained some acceptance as a store of value outside government control.

While we believe modest portfolio adjustments, such as examining dollar exposure, maintaining a global portfolio, and owning “safe havens” like gold and bitcoin as a hedge against possible dollar depreciation may be beneficial, we still view equities as the most practical and universal hedge. Investing in stocks may be the simplest way to hedge against inflation, however, because stocks offer exposure to real economic growth, pricing power, and global demand. They allow holders to participate in the hard work and innovation of employees and to benefit from the pricing power that companies can exercise.

The same chart from above, with returns adjusted into U.S. dollars (see below), shows Argentine and Turkish stocks no longer exceeding the U.S. or ACWI. Yet even these countries’ economically challenged markets have delivered positive returns in the face of massive uncertainty. Unlike bonds, which can be eroded by inflation and currency depreciation, equities have shown resilience—even in countries facing deep crises. And global investors tend to reprice companies toward fair value, creating a natural hedge against local currency weakness.

Net Total Return Index (Net of Dividends) Ended July 31, 2025

This is not to suggest that buying stocks in markets with depreciating currencies is the first choice of global investors. Other risks—such as political stability, capital controls and other governmental intervention—can cause large swings in realized returns over certain periods. It does suggest, however, that if it is possible to make money in equities in Argentina and Turkey in both local and U.S. dollar terms, then it certainly is possible to remain confident even when some pundits claim America has lost it exceptionalism or that foreigners may no longer want to own U.S. assets the way they once did. Stocks are still the asset we consider the most resilient and reliable generators of superior long-term real returns. And we fully expect the United States to maintain the conditions for companies to flourish here.

Our Positioning Today

Markets have been very kind for the past four months, gaining 30% from April’s lows. While we remain constructive and fully at target equity exposure generally, we are mindful of seasonal volatility and policy uncertainty. Historically, if something is going to go wrong, it tends to happen in September or October. As a result, we hold modest equity puts as inexpensive insurance.

Looking beyond the near term, we see supportive conditions for equities. November and December have historically been the strongest back-to-back months of the year. A combination of “revolutionary” new technology (AI), a decent economy, and an easing Fed could be a terrific recipe for higher stock prices.

Closing Thoughts

We remain confident in the United States’ global leadership position, cautious on government debt (including that of the United States), and constructive on equities as the most reliable source of long-term real returns. Deficits and dollar risks should not be ignored, but history and evidence suggest that owning businesses—through equities—remains the best way to preserve and grow wealth over time.

As always, we greatly appreciate the opportunity to manage your capital and help you achieve your organization’s goals. We are here to assist in any way possible, so please feel free to reach out to us with any questions or needs.

Your TIFF Investment Team

The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.

Executive Summary

• Economic uncertainty has resulted in an extremely strong year for gold, with the precious metal rallying ~30% as of early September
• As investors look for safe havens, a discussion has emerged about whether cryptocurrency—specifically bitcoin—could become “the new gold”
• While bitcoin has not yet achieved the safe-haven status gold enjoys, with time and continued acceptance, it could come to serve a similar role in financial markets
• There are several similarities between bitcoin and gold, including their scarcity and their role as stores of value. Despite the similarities, however, bitcoin lacks the legitimacy of gold’s 5,000-year history
• TIFF is cautiously optimistic about crypto’s future and has made small investments to capitalize on innovation in the space

So far, 2025 has been a year of uncertainty. Investors wait anxiously on news of potential tariffs, geopolitical risk remains elevated, and the market swings with each new announcement. It is not surprising, then, that investors are seeking safe havens such as gold. Gold has had a phenomenal year, returning over 30% as of early September. The last time gold saw gains of this magnitude was 15 years ago in 20101. Unlike 2010, however, investors are starting to see another potential safe haven to weather turbulent markets: cryptocurrencies.

It’s important to take a brief step back. Saying that cryptocurrency could be a safe-haven asset is too broad a statement. The crypto universe is incredibly diverse, with different cryptos serving distinct purposes and deriving value in different ways. For example, a stablecoin is different than a utility token. To be more specific, let’s focus primarily on bitcoin. Originally designed to function much like a currency, bitcoin is now the most widely accepted crypto asset, accounting for more than 55% of the total crypto market cap2. Given its primary use case as a store of value and its dominance in the market, we will focus the remainder of this paper on the comparison between gold and bitcoin.

Many have speculated whether bitcoin is or will become the new gold, gradually overtaking the precious metal as the premier safe haven. While it has not yet achieved the safe-haven status that gold enjoys, with time and continued acceptance, bitcoin could come to serve a similar role in financial markets.

Two Sides of the Same Coin

Why has the comparison between these assets been drawn? While there are notable differences between the two, gold and bitcoin share several similarities, beginning with scarcity.

Gold is unique among many major commodities in that it is not typically consumed. While it can be used in items like batteries, producers often substitute other metals due to gold’s high cost. Its supply also grows very slowly. A report from Goldman Sachs states that “new annual production adds just over 1% to the existing stock and is stable and price inelastic.”3 As a result, when demand grows, it is difficult (if not impossible) to quickly increase supply, as producers might with oil, to meet the increase in demand. This constraint ultimately helps drive up gold’s value.

Bitcoin is similar. It has a fixed supply, with the final bitcoin projected to be mined by 2140. In fact, bitcoin’s scarcity is now even greater than gold’s, as measured by its stock-to-flow ratio (the existing supply relative to annual production). In April 2024, bitcoin surpassed gold as the asset with the highest stock-to-flow ratio among liquid and easily tradable assets4.

One of the most important similarities is that both gold and bitcoin function as stores of value, meaning they are expected to preserve their worth over time. This quality is especially important for any asset to be considered a safe-haven. Investors seek assets they believe will protect their wealth during times of uncertainty. Gold acquired this characteristic because it was discovered to be both scarce and durable. Bitcoin, by contrast, was deliberately created as a store of value. Ultimately, however, both rely on shared trust to sustain their worth.

The Test of Time

It is in this need for “buy-in” and belief that we begin to see the key difference between bitcoin and gold. Gold has been considered a source of wealth for 5,000 years. The U.S. once operated under a literal “gold standard,” and even though that ended more than 50 years ago, the term still signifies the highest level of quality. There is no dispute that gold is valuable and will continue to be into the future. Bitcoin, by contrast, lacks that legacy.

This difference is reflected in the respective volatility of the two assets. Gold has a long-term volatility of approximately 15%. Bitcoin’s volatility, meanwhile, has decreased as it has gained greater legitimacy, but over the past five years it has still averaged approximately 40%—more than twice that of public equities. That level of volatility is hardly consistent with what one would expect from an asset used predominantly as a safe haven!

The good news for bitcoin is that it shouldn’t take 5,000 years for it to achieve the same level of legitimacy as gold. Adoption of new technologies and innovations occurs far more quickly now than in the past. As the number of bitcoin investors continues to grow, and if regulation remains favorable, bitcoin may begin to behave more like gold.

There are risks, however, that could change bitcoin’s trajectory. One of the most prominent is the advancement of quantum computing. This poses a significant risk to any digital technology that relies on the difficulty of prime number factorization. In theory, quantum computers can factor huge numbers exponentially faster than classical computers, which could render bitcoin’s mining methods obsolete.

Bitcoin miners and developers are aware of these risks, and upgrades could be implemented to mitigate quantum threats. Another risk is the possibility that a different store-of-value cryptocurrency could eventually supplant bitcoin. As the first cryptocurrency, bitcoin certainly holds a significant edge, but technological advances, regulatory shifts, or investor sentiment could change that.

Positioned for Possibility

Uncertainty notwithstanding, there may be growing validity in the idea that bitcoin is the new gold”—or that it could be in the future. The similarities between gold and bitcoin are evident. What bitcoin still lacks is the confidence in its value that gold has earned over centuries. With time, however, that confidence could still come.

In the interim, we at TIFF still believe it is prudent to have at least a small exposure to crypto in our portfolios. We do this through limited allocations to a relative value crypto strategy, a broad-based liquid crypto index fund, and a crypto-oriented VC strategy. Though the position is small, we believe meaningful innovation will emerge from the crypto ecosystem that ultimately drives genuine value. While we may not yet know what form that value will take, we are confident that when the opportunity becomes clear, we will be well positioned to capture it.

If you have a question about cryptocurrency, gold, or how TIFF can help you manage your portfolio through uncertain times more broadly, please do not hesitate to reach out.

The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.

Executive Summary

• The hedge fund industry is no stranger to AI, but recent advancements have improved the way hedge funds invest.
• Data is a key competitive advantage for hedge funds leveraging AI. However, investors should understand how that data is sourced, processed, and interpreted.
• Key impediments to broader AI adoption include the high cost of computing power and difficulty attracting top-tier talent.
• Despite AI’s growing role, human judgment remains a critical component of investment decision-making.

Introduction

Leopold Aschenbrenner, a 23-year-old former OpenAI engineer and founder of the $1.5 billion hedge fund Situational Awareness, wrote recently that “Everyone is talking about AI, but few have the faintest glimmer of what is about to hit them.”1

For an industry that hires some of the smartest people in the world and prides itself on innovative investment approaches, how vulnerable is the hedge fund industry to an AI invasion?

In reality, hedge funds have been incorporating forms of AI for decades. Large systematic (quantitative) funds have existed since the 1980s. Even more recent funds like Numerai, which relies on public tournaments to crowdsource quantitative trading signals, have been around for over a decade.2

Let’s explore how hedge funds are deploying AI today, along with the challenges that still exist.

Data and Delusion

Put simply, AI models take large amounts of data and aim to predict the future of market movements based on this data (Figure 1). Yet we often hear the question: “Isn’t data just data? Can’t everyone just buy the same data?”

Not so. In practice, we have found that access to proprietary, well-structured data has become one of the key differentiators in determining which hedge funds have an edge in the AI race.

Systematic funds represent some of the earliest and most prominent adopters of AI in the hedge fund industry. They utilize vast quantities of data to identify patterns and generate predictive signals. Investors often assume these funds have pristine data and can forecast with precision. In reality, many predictions are based on small tidbits of information. The process can sometimes be like trying to guess a picture of a dog when all you are given is 5 pixels. Many systematic funds operate with hit rates slightly over 50%, but small gains with enough repetition can lead to large gains. Unsurprisingly, systematic funds have invested heavily in their data capabilities in recent years.

Ben Wellington from Two Sigma highlighted this point on a recent podcast, emphasizing the importance of being present at the moment data is created to ensure proper categorization.4 In this podcast, he shared an example from the post-financial crisis era: after 2008, a major newspaper retroactively labeled articles from 2006 and 2007 as “subprime.” A researcher relying only on these labels might mistakenly conclude that the sudden rise in “subprime” mentions was a powerful predictive signal. In reality, it reflected backfill bias—a postmortem reclassification rather than a true early warning.

One area within hedge funds where data aggregation has shown its worth is in the event-driven space. Long-tenured Equity Capital Markets (ECM) funds investing in deals such as IPOs, M&A, and issuances have been able to accumulate a treasure trove of data on past transactions, which in turn helps make surprisingly accurate predictions about outcomes of future events.

For example, by identifying situations that are likely to lead to a deal break, an M&A fund could limit its exposure to left-tail events, thereby enhancing its overall return profile of the fund.

Moving forward, we believe those funds with the deepest, richest, and most proprietary data will retain a significant edge. More recent entrants will need to demonstrate more creativity in how they use available data to leapfrog incumbents.

Talent and Technology

Nvidia’s staggering ~1,200% performance5 over the past five years has demonstrated the importance of computing power to AI development. More processing power means faster hypothesis testing and portfolio optimization which may lead to faster and better signal development. For systematic funds, this could translate directly into alpha. The downside is that processing power is expensive and difficult to scale. Leasing costs for data centers for a large systematic fund can run into hundreds of millions of dollars per year, thus limiting the amount of AI a smaller hedge fund can realistically deploy.

More important than processing costs is the ability to attract talent. It is often said that 20% of researchers generate 80% of the successful signals in a given year, though the challenge is that no one knows in advance which 20%. For this reason, it is important to keep a wide cast of highly talented (and highly paid) staff on the payroll. Hedge funds are competing with technology firms for top AI talent, with pay packages now exceeding $1 million per year.  What’s more, each AI developer needs to have a supporting cast of data engineers and developers to help turn theory into reality.

That said, we have seen increasing success rate among more entrepreneurial managers who strike out on their own with assistance from AI, particularly those focused on a specific niche.

Judgement and Justification

For all of AI’s capabilities, there remain areas of investing where human judgment is difficult to replicate. Manager discretion is one of the most significant. Fundamental strategies retain an edge in situations where decision-making depends on conviction, contrarian thinking, or nuanced human interactions. For example, when a portfolio manager chooses to concentrate on a handful of high-conviction positions, or makes a contrarian trade based on direct engagement with company management, the driver is individual judgment rather than an algorithmic signal.

Management meetings underscore this distinction. Whether investors are receptively learning or seeking to influence outcomes through activism, these activities remain firmly in the fundamental toolkit, not the quantitative one. Human relationships and qualitative assessments are central to investment due diligence, and AI has not yet shown an ability to replicate these dynamics. Many of the top-performing fundamental hedge funds demonstrate a proclivity to execute judgment calls that may rest on nothing more than pattern recognition honed over years of experience in a particular market segment.

This is not to say AI cannot aid the traditional investment process. We often find that today’s fundamental investors are using AI to help them summarize information and build a baseline understanding. Tools capable of reading decades of company filings in minutes, updating financial models post earnings in seconds, and distilling real-time company news into bullet points have given these managers much greater efficiency in their decision-making.

Conclusion

We remain optimistic about AI’s potential and believe it will continue to reshape the landscape of the hedge fund industry. However, managers should be cautious not to rely so heavily on AI that they lose their judgment.

The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.