Author: Amy Paterson

Executive Summary

• Corporate activity contracted materially in 2022 as rising interest rates, valuation uncertainty, and heightened regulatory scrutiny made deal execution prohibitively difficult and often unattractive.
• By late 2025, those constraints began to ease; financing conditions stabilized, market confidence improved, and long-deferred strategic expansion began moving back onto boardroom agendas. M&A and IPO activity began to recover.
• We view 2025 as the early phase of a broader normalization, supported by a strong pipeline of deferred transactions and increasingly favorable market and regulatory conditions.
• Historically, such environments have favored event-driven strategies, particularly merger arbitrage and equity capital markets managers.
• Recognizing these dynamics, TIFF increased exposure to event-driven strategies through allocations to merger arbitrage and equity capital markets managers.

“We are optimistic about the outlook for equity and debt underwriting, particularly amid the resurgence in the IPO market and higher acquisition finance-related activity.”
— David Solomon, Goldman Sachs CEO at Q4 2025 earnings period

A Shift in Corporate Sentiment

During the Q4 2025 earnings season, corporate commentary shifted meaningfully with renewed enthusiasm around M&A and equity capital markets: a dealmaking renaissance. After several years of constrained activity, corporates are now eager to act. We see early signs of recovery in 2025 across mergers and equity capital market issuance, creating conditions that have historically favored event-driven strategies. To understand the significance of this shift, it is helpful to revisit what caused the slowdown.

The 2022 Reversal

Prior to 2022, deals were elevated across both M&A and equity capital markets. Following the initial COVID shock, extraordinary monetary and fiscal stimulus drove interest rates to historic lows and sharply reduced the cost of capital. IPO issuance and M&A reached record levels in 2021, supported by strong equity markets and abundant financing. For event-driven managers, the opportunity sets were broad with low closing risk. According to HFRI, event-driven strategies were among the best-performing hedge fund categories in 2021.

Conditions changed abruptly in 2022. Inflation surged, prompting one of the fastest monetary tightening cycles in decades. At the same time, heightened regulatory scrutiny extended review timelines and increased deal uncertainty. This deadly combination materially weakened business confidence and reduced corporate willingness to pursue transactions.

Global IPO issuance fell by roughly 70–80%,1 while M&A volumes declined 40–50% from prior peaks.2 As transaction activity slowed, opportunity sets narrowed and event-driven strategies faced a challenging backdrop.

Early Signs of Recovery

After several years of limited IPO and M&A activity, material pressure began to build beneath the surface, and a substantial backlog of high potential transactions accumulated. As of late 2025, more than 1,300 unicorns3 remained held within private equity and venture capital portfolios.4 Prolonged holding periods increased pressure on private equity sponsors to unlock capital and realize IRRs, while venture-backed companies faced growing urgency to secure long-delayed liquidity events.

By 2025, several headwinds that froze corporate activity began to ease:

• Interest rates stabilized, reducing uncertainty around financing costs.
• Equity markets recovered, restoring confidence in public market exits.
• Corporate balance sheets strengthened, supporting renewed management confidence in strategic decision-making.
• Regulatory review processes became more predictable, improving visibility around deal execution timelines.

Boards and sponsors shifted from “wait-and-see mode” to careful execution with optimism. In 2025, both M&A and equity capital markets rose ~40% year-over-year in dollar terms5 6 with broad-based recovery across sectors and geographies. Strategic transactions led the rebound as companies repositioned for growth, with artificial intelligence serving as an additional catalyst for large-scale deals.

As transaction flow resumed, event-driven opportunity sets expanded accordingly. Event-driven performance recovered alongside activity, with the HFRI Event-Driven Index returning approximately 11% in 2025.

We view 2025 not as a short-term rebound, but as the early phase of a broader normalization. Financing conditions have stabilized, business confidence is restoring, regulatory review processes have become more predictable, and the backlog of deferred transactions remains substantial. In our view, the recovery reflects a return toward the long-term growth trajectory that preceded the disruption.

Why This Matters for Event-Driven Strategies

Event-driven strategies are designed to capitalize on corporate activity. As transaction volumes expand, opportunity sets broaden meaningfully. Recognizing these dynamics, TIFF increased exposure to event-driven strategies through allocations to merger arbitrage and equity capital markets managers.

Merger Arbitrage Strategies

Merger arbitrage strategies seek to capture the spread between a target company’s trading price and the offered price in a merger transaction (deal spread).

Higher deal volumes expand the investable universe, allowing managers to be more selective and better diversified across deals. Improving confidence in deal completion and more predictable regulatory timelines can reduce downside risk and shorten holding periods.

While increased competition has narrowed spreads in parts of the market, disciplined managers with strong deal selection, risk management, and portfolio construction remain well positioned to participate across a broader and more active opportunity set.

Equity Capital Markets Strategies

Equity capital markets (ECM) strategies seek to capture deal-specific alpha by providing liquidity across primary and secondary issuance, including IPOs, follow-ons, block trades, and convertible securities.

ECM managers are positioned to benefit from a growing pipeline of transactions and increased issuance frequency. Experienced managers often engage with issuers well ahead of market reopening, working alongside management teams and underwriters on positioning, investor messaging, and deal structuring. These long-standing relationships and preparation can translate into improved access and more attractive allocations as issuance resumes.

Portfolio Diversification Benefits

Importantly, both strategies tend to exhibit low correlation to broader hedge fund strategies. Returns are driven less by market direction and more by deal structure, execution, and corporate decision-making, offering meaningful diversification benefits within a multi-strategy portfolio.

Positioning for a Multi-Year Normalization

Our objective was not to time a short-term rebound, but to position the portfolio for a sustained reopening of corporate activity.

We believe the recovery that began in 2025, supported by stabilizing financing environments, a more predictable regulatory backdrop, and a substantial pipeline of deferred transactions, represents the early stages of a multi-year normalization.

As transaction flow continues to rebuild, event-driven strategies are positioned to benefit from an expanding opportunity set across mergers and equity capital markets.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. There is no guarantee that any particular asset allocation or mix of strategies will meet your investment objectives.

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 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.

In a recent FIN News article about the benefits of the OCIO model, Jessica Portis, Chief Client Officer, spoke about how OCIO assets are projected to grow and how OCIOs allow institutions to focus on mission and strategy, rather than day-to-day investment execution.

“There’s this concept of consultants being able to advise, but OCIOs are really able to execute and advise,” Portis said.

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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

• Transformational capital can significantly accelerate mission impact, but without discipline, it can introduce governance, financial, and strategic risks.
• A concise, investment-focused framework can help nonprofit boards and staff prepare for large gifts and steward them responsibly.
• Transformational gifts should be treated as balance sheet events, not just programmatic opportunities.
• This four-principle framework emphasizes governance readiness, capital discipline, investment and spending alignment, and long-term mission integrity.
• When applied together, these disciplines help convert generosity into durable mission outcomes.

Context: A Framework for Transformational Gifts

An unprecedented transfer of wealth is underway, accompanied by a growing prevalence of large, often unrestricted, gifts to nonprofit organizations. While transformational capital can significantly accelerate mission impact, it also introduces governance, financial, and strategic risks if not managed with discipline.

This article offers an investment-focused framework to help nonprofit boards and staff prepare for large gifts and steward them responsibly as balance sheet events, not just programmatic opportunities.

Principle 1. Governance Readiness Before Capital Arrives

Institutional and Fiduciary Preparedness

Sophisticated donors increasingly seek evidence that an organization is ready for capital, not merely in need of it. Readiness is demonstrated through clear strategic priorities, transparent financial reporting, and thoughtful articulation of how unrestricted funds would advance mission impact.

Equally important is governance capacity. Large gifts magnify existing strengths and weaknesses. From an investment perspective, they often require boards to oversee meaningfully larger and more complex balance sheets. Boards must be prepared to make higher-stakes fiduciary decisions related to risk, liquidity, and time horizon. Organizations anticipating significant gifts should ensure audit, finance, and investment oversight structures are clearly defined, active, and appropriately resourced.

Principle 2. Capital Discipline After the Gift

A Deliberate Strategic Pause

A common post-gift pitfall is moving too quickly into spending or expansion. The best practice is to impose a deliberate pause — often 90 to 180 days — before major commitments are made. For boards, this pause allows time to evaluate how new capital should function on the balance sheet before committing to investment or spending decisions. This period allows organizations to document donor intent, update policies, and conduct scenario and stress testing before capital deployment.

Capital Allocation Policy

Before determining how funds are invested or spent, boards should adopt a capital allocation policy that explicitly addresses:

1. Permanence: What portion of the gift is permanent versus time-limited?
2. Time Horizon: Over what period should the capital be deployed or preserved?
3. Risk Tolerance: What financial and operational risks are acceptable in pursuit of mission goals, and how do those risks interact with existing revenue variability and reserves?

Separating capital allocation decisions from annual budgeting helps preserve strategic clarity and long-term discipline and creates a clearer foundation for investment and spending policy design.

Principle 3. Investment and Spending Considerations

Beyond the Traditional Endowment

Large gifts do not automatically imply permanent endowment. Many organizations benefit from hybrid structures such as board-designated endowments, time-limited capital pools, or multiple investment sleeves with differing objectives and liquidity needs. These structures allow organizations to align investment risk, liquidity, and spending expectations with the role each pool plays in supporting the mission.

The appropriate structure depends on mission volatility, revenue stability, and organizational capacity to govern increasingly complex investment programs.

Investment and Spending Policy Alignment

A larger asset base warrants a re-examination of the Investment Policy Statement, including risk tolerance tied to mission variability, liquidity needs, and governance procedures appropriate to scale. As assets grow, informal practices often need to be replaced with clearer delegation, monitoring, and decision-making frameworks.

Spending policies should likewise reflect the organization’s absorptive capacity rather than default market norms, with phased or dynamic spending approaches often better supporting sustainable impact and protecting long-term purchasing power.

Principle 4. Protecting Mission Integrity Over Time

Managing Financial, Cultural, and Reputational Risk

Transformational gifts can alter organizational culture, incentives, and public perception.

From a balance sheet perspective, boards should consider concentration risk, sensitivity to investment performance, and the long-term effects of relying heavily on a single pool of capital. Transparency should emphasize accountability and learning, rather than performative reporting.

Conclusion

Transformational philanthropy presents a rare opportunity to strengthen nonprofit impact and resilience. Organizations that pair generosity with disciplined governance, clear capital allocation and investment policy frameworks, and thoughtful investment strategy are best positioned to translate large gifts into enduring mission success.

How We Help

At TIFF, we partner with nonprofit boards and executive teams to prepare for, receive, and steward transformational gifts with confidence and discipline. We help organizations answer the most consequential questions these gifts raise:

• How should this capital function on the balance sheet?
• What level of investment risk and liquidity best supports the mission?
• How should spending and governance evolve as assets scale?

This work focuses on capital allocation strategy, investment and spending policy design, and governance readiness, helping organizations make well-governed decisions that honor donor intent while protecting long-term institutional integrity. TIFF’s investment expertise and educational resources are designed to support nonprofits as their balance sheets — and fiduciary responsibilities — grow in complexity.

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.

The NACUBO-Commonfund Study of Endowments FY25 average one-year performance for all institutions is 10.9%, bringing the 10-year average return to 7.7%. TIFF’s November 2025 preliminary FY25 outlook reflects a similar view to the final NACUBO report’s findings on performance.

1. Everyone’s a winner in 2025: There were many ways to win in FY25, as no single asset class was an outlier in performance, in contrast with prior years. No major asset class had negative returns and the bottom 10% of endowments still returning 8.4%. Those who eked out top quartile performance likely had overweight allocations to AI themes (public or private), precious metals (e.g., gold), international equities and hedge funds.
2. Size didn’t matter for the first time in a long time: FY25 performance was relatively even across size-based cohorts. With strong performance across a variety of asset classes, the asset allocation differences across size segments didn’t materialize in meaningfully different performances. While the $5B+ peer group had the highest average FY25 returns at 11.8%, the second-highest returning peer group was the $51M-$100M group with an average return of 11.1%. Historically, endowment size has been a strong determinant of performance, with larger endowments historically outperforming smaller endowments due to larger allocations to private assets. We saw this reverse the past two years (FY23-24), when smaller endowments outperformed their larger counterparts.
3. Narrow band of outcomes: Due to strong performance across all asset classes, there was not as much dispersion in investment outcomes compared to previous years. The interquartile dispersion, which measures the gap between the 75th and 25th percentiles, was 2.4% in FY25. This is low compared to the previous five fiscal years, which saw interquartile dispersion ranging from 3.1% to 7.1%.
4. Operating budgets lean more on endowments: Institutions appear to be increasing use of the endowment to support their mission. In FY25, the average portion of the operating budgets funded from endowments reached 15.2%, compared to 14.0% in FY24 and 10.9% in FY23. While spend rates have remained relatively stable, special appropriations have increased in recent years, particularly for larger endowments. In FY25, the majority of specially appropriated funds went towards the operating budget.
5. Strong returns, persistent headwinds: Despite a positive endowment performance year, higher education faces a myriad of headwinds that are putting pressure on institutions to lean on their endowments. Pressures come from both sides: revenue (declining enrollment, gifts and federal funding) and costs (higher inflation, increased endowment tax). However, different size segments face different pressures. For smaller endowed institutions, enrollment tops the list of concerns, while they also face challenges in fundraising and increasing financial aid. For the largest endowed institutions, the predominant concerns are federal funding cuts and liquidity.

FY25 Asset Class Returns

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.