Category: CIO Commentary

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

• Q2 saw significant market volatility, including an 18.9% S&P 500 drop over 49 days—comparable only to COVID-19, the Lehman collapse, and the 1929 Crash—though markets have since rebounded as investors price in more optimism than media and expert commentary suggests.
• The U.S. fiscal outlook is deteriorating, with the “One Big Beautiful Bill” projected to increase the federal deficit by $2.7 trillion over the next decade, and a sustainable path will require multi-pronged, gradual deficit reduction over many years.
• Foreign investors are beginning to question U.S. exceptionalism due to expensive markets and a strong (but weakening) dollar.
• Despite negative headlines, economic fundamentals remain solid: Q2 GDP is forecast at 3.4%, job creation continues at 120k/month, inflation has eased to 2.4%, and wage growth exceeds inflation—suggesting resilience and room for cautious optimism.
• Tariffs remain a risk with Trump’s planned July 9 actions, but TIFF anticipates they will be diluted and resolved by year-end.
• Proposed endowment tax changes (raising the rate to 8%) could force institutions to seek greater liquidity and rebalance portfolios, creating short-term buying opportunities and increased access to top-tier private equity and hedge fund managers.
• TIFF’s portfolio remains close to its strategic allocation (65% equities / 20% hedge funds / 15% fixed income), with neutral regional and sector exposures and a strong focus on manager alpha to drive returns.

It’s Not Over Yet

We have been expecting above-average volatility, and we got it this quarter. DOGE appears to have ended with very little actual budget impact and Trump’s proposal for next year’s budget has done nothing to help the deficit trajectory. The Congressional Budget Office (CBO) estimates that if enacted, this would add $2.7 trillion to the federal deficit over the next 10 years. Most other reputable forecasts are somewhat higher than this estimate, but when the baseline is $21.1 trillion, the increments seem less significant. The US remains on an unsustainable path unless meaningful steps are taken to address rising debt and persistent deficits. We have been numbed from the exorbitant levels since the Great Financial Crisis. The largest ever annual deficit before 2008 was -$413 billion (a huge number itself!) with a median deficit of ~-$200 billion. The smallest annual deficit since 2008 was -$438 billion, with a median of ~-$1.1 trillion (2024 is estimated at -$1.9 trillion). That represents 6.5% of estimated GDP—in a decent economy! But comparing the deficit to the overall GDP mixes an “income statement” loss (deficit) to a related, but merely referential, total economic number (GDP). A fairer comparison is to compare the deficit to the actual revenue of the government of roughly $5.0 trillion in 2024. On that basis, the US is spending roughly 40% more per year than it receives in receipts.

The Congressional Budget Office Estimates a $2.7 Trillion Deficit Impact by the One Big Beautiful Bill Act, as Passed by the House of Representatives on May 22, 20251

We need to take action to try to get off this path, potentially soon. Time is running out. Getting out of this will be like shortening a 3-legged stool. You can’t cut one leg off, or the stool tips over. The only way to do it is to shorten one leg by two inches, another by two inches, and finally, the third by two inches. You repeat this process as many times as needed to achieve the desired height. It will likely take a decade or more for our country to return to something that can be sustained for future generations.

Success for the US economy will look something like 3% GDP growth, a budget deficit of 3% of GDP (so that as a percent of GDP, the debt quits growing—similar to how each of us can handle more debt as our income and assets grow). Throughout this, we need to keep productivity high, which means inflation must also remain under control. This is a tall task, for sure, but one we must attempt to tackle. The sooner the better; the later, the more painful. Markets can move quickly and violently to impose discipline, as observed in 2022 in the United Kingdom.

The big question, then, becomes whether the proposed budget, if passed, will enable us to achieve this target. We don’t know. Will it break the proverbial stool? Can we stay on track and not give up along the way if it (or something else) can get us there over some number of years? This is the challenge of our times. Whether it’s this or some other plan, we need to become unified in our goal of improving our financial situation. If we don’t, the capital markets will, and possibly in a much less comfortable way.

The continuing deficit is one of several reasons that the markets today are asking if US exceptionalism is over. Other concerns include expensive US capital markets relative to other countries and a potentially overvalued dollar. Believers are speculating that this means the US is, therefore, a less attractive investment destination for foreigners, who may be starting the process of bringing some of their capital back home. If true, this could be a long, slow process that pushes the US share of global stock markets (65%) down toward something closer to our share of global GDP (25%). It won’t happen all at once, and it won’t likely push our share of markets that low, but directionally, it would mean that other markets will mostly outperform ours for years to come. If the USD also loses global purchasing power, then Americans planning a European vacation will need to save a little more than they do today. As believers in the US and our economy, we remain adherents to Warren Buffett’s suggestion to “Never bet against America.” As global investors, we also have an ever-changing benchmark and will therefore not get too far out of step with whichever path proves correct in the coming years.

US Dollar Index Against a Basket of Currencies Has Shown Strength Since the Great Financial Crisis but Has Recently Dipped2

What Next

As for things more near to hand, the last quarter was the most volatile in a while. From its February 19 high to its April 8 low, the S&P 500 sold off 18.9%. According to Perplexity.ai, this has only happened in fewer days three times—during COVID-19, the Lehman collapse that punctuated the GFC, and the 1929 Crash that started the Great Depression. Not the sort of company one wants to keep. This may be why most TV news commentators, economists, and market prognosticators all sound so negative. Every night, we hear that a recession is coming along with higher inflation.

Why, during this time, are equity markets doing so much better? As we’ve said before, the stock market is a forward-looking, discounting machine. It dispassionately takes account of what is happening in the economy, politics, geopolitics, and other relevant areas, and estimates how that will ultimately impact the forward earnings of companies whose stock is traded on the exchanges. Investors are looking forward and seeing a brighter future than the prognosticators. We, too, are more optimistic.

Despite all the naysayers, the economy continues to hold up, at least so far. Real quarterly GDP growth was -0.5% in Q1 this year, primarily due to US businesses purchasing much more from abroad than they exported (likely looking to get ahead of tariffs), thus contributing -4.8% to Q1 GDP. Happily, the latest Atlanta Fed Q2 GDP forecast (based on data through June 18) is for 3.4% growth. US GDP forecasts for the year 2025 range mostly between 1.4% and 1.9%. Similarly, the number of jobs created this year continues to surprise to the upside, averaging 120k per month. This is just enough to keep the unemployment rate roughly stable around the 4.25% level. And finally, CPI inflation recently came in just 2.4% higher than last year, down from 2.9% at year-end. Meanwhile, year-over-year personal income growth through April 2025 is 2.94%. We are trying to stick to reading the numbers and not listening to more qualitative assessments. So far, at least, our read is that the economy and job creation continue to be solid, and the markets agree.

Lastly, regarding the Middle East war, our take on direct US involvement is balanced. As we write, the direct hit on Iranian nuclear facilities appears to have been successful at minimizing (still no IAEA confirmation) their potential nuclear threat for quite a while. This would be good (US stocks rose 2% in the two days after the strikes). World leaders are nearly unanimous that Iran should honor the treaty it signed and not become a nuclear power. This could portend a very positive future for the Middle East if it leads to Iran becoming a peaceful country, working to improve its citizens’ lives as most other countries in the region seem to be doing. In the short run, however, we don’t know if Iran or its proxies have cyber capabilities, sleeper cells, ballistic missiles, or anything else up their sleeves that could be used in a scorched-earth effort to remain in power. The next few months will be very important for the entire region. The good news seems to be that Russia and China are not coming to Iran’s aid (nor is anyone else), suggesting this could be the start of a brighter future for Iran and the entire Middle East.

Looking Ahead

Following his 90-day pause on “reciprocal tariffs,” Trump plans to enact specific new tariffs on 57 countries starting on July 9. If the administration’s use of current statutes is declared illegal, it will likely try other legal approaches to pursue the administration’s goal of imposing tariffs (note: we’d generally prefer not to have tariffs—as we consider tariffs to be taxes, and taxes slow the economy). For this reason, we aren’t yet out of the tariff woods. We are, however, starting to see that tariffs are very unlikely to remain anywhere near the levels Trump announced on “Liberation Day.” This is good. While July 9 may bring short-term market volatility and is unlikely to mark the end of the story, we remain confident that tariff negotiations will conclude by year-end. We also believe that in the second half of this year, Congress will pass a budget (the “One Big Beautiful Bill”) that keeps taxes low and will begin to reduce regulation. Both of these will be welcomed by markets in our opinion. As the uncertainty and, hopefully, the volatility subside, we expect to see more investors becoming optimistic about the future and stock prices working their way somewhat higher. Longer-term, AI will accelerate growth and improve the efficiency of almost everything. Self-driving cars (try a Waymo in San Francisco and you’ll love it) could become common this year, and in another few years, humanoid robots will break onto the scene. We may not all like these advancements, but businesses that embrace them will become more productive and profitable than those that don’t. This could improve GDP growth and help us get our deficit under control. We keep looking for hopeful ideas on this front, and for now, this seems to be our best remaining hope.

On the fixed-income side, our views on the deficit picture probably gave you a good idea that we still prefer hedge funds. Hedge funds should continue to perform better as a group than the Bloomberg Fixed Income Aggregate, and they provide much better alpha opportunities than fixed income. Our duration remains just short of 5 years vs. our benchmark at approximately 6 years. We would love to trim duration if yields on the 10-year Treasury get to 4.25% or below. Conversely, if yields get to 4.75% or so, we expect to add duration. We continue to anticipate the 10-year will trade in a 4.25% to 5% yield range this year. We will likely buy at the higher yields and sell at the lower yields. Interest rates will be impacted by the US budget and deficit progress (or lack thereof), as well as inflation changes—whether higher (as most expect) or lower (as a few expect). Nevertheless, there is better value in fixed income today than in many years.

Meanwhile our hedge fund portfolios continue to do well for us, and we like our manager roster. The proposals to raise the tax rate that “wealthy endowments” pay (to as high as 8%) could create opportunities for TIFF. While the opportunity is smaller now than it would have been at the originally proposed 21% rate, affected endowments may still look to reduce their tax burden. This could lead them to (1) move away from high-turnover hedge funds or (2) sell private investments now to avoid future gains taxes and create liquidity for rebalancing their private book.

Our eyes are wide open for opportunities to upgrade already strong manager rosters across all our portfolios.

For now, we remain very near our strategic asset allocation targets of 65% global equities/20% hedge funds/15% fixed income. We are also quite neutral relative to geographic and stock market sector weights, relying heavily on manager alpha to drive positive relative performance. Fingers crossed; this strategy has been beneficial so far this year, and today, we don’t see a compelling opportunity that would cause us to change from this positioning.

Where’s the Big Opportunity of the Future?

A number of people have started asking if the current chaos is creating opportunities that we believe could prove helpful in coming years. We mentioned some possibilities above when discussing how the proposed endowment tax changes could create access to new managers. Below, we will address the question in greater detail. TIFF will have our own favorite approach to tackling this potential opportunity, but our goal here is to outline which asset class/assets could generate better-than-average returns over the next 3-7 years. Let’s dig in.

Over the long run, different assets provide generally different returns. Money markets, for example, usually provide the lowest returns with the least risk and lowest volatility of annual return. Next up are bonds, where returns are usually a bit higher than money markets but they can be more volatile and you can lose money from time to time. Hedge funds are riskier and, in our opinion, higher returning investments. Public equities typically provide even higher returns, while private generally equity offers the highest return, but also carries the most risk. One of the features that makes private equity riskier than public equity is its lack of liquidity. When events conspire against the capital markets and you want to step aside, it’s only possible if your holdings are liquid. You might be able to sell your illiquid private equity holdings, but usually only at a steep discount.

This is why we own some illiquid private investments, but we try to limit our ownership to 1/3 or so of a portfolio. We like the higher expected returns but understand and incorporate the higher risk that comes with illiquidity. Others are willing to take much higher illiquid exposure than this and that could be presenting an opportunity today.

The Proposed One Big Beautiful Bill (OB3) Endowment Tax

The OB3 proposal introduces a progressive, tiered tax schedule on private higher education endowments (up to 8% from current 1.4%). We’ve written an overview of the latest Senate draft tax proposal [here] for the details. The proposal represents a substantial change in higher education taxation that, when coupled with possible modifications in other higher education governmental funding and student eligibility, could impact private markets in both the short and long terms.

In the short term, impacted investors may look to increase liquidity and rebalance portfolios. In the long term, impacted institutions may look to (1) increase their expected returns to offset the tax drag and/or (2) look to defer any potential tax liability by seeking long-hold assets.

We anticipate two possible short-term outcomes from these:

1. Increased use of secondary markets as institutions:
   • Rebalance portfolios in light of the tax
   • Manage the increased financial burden on endowment
   • Create potentially interesting buying opportunities on the other end of those transactions
2. Availability of capacity at some previously closed PE (and HF) managers as impacted endowments augment liquidity to new higher levels reflecting the new higher annual draw.

If this happens, we will try to add attractive managers to our roster, which we already like a lot.

Over the longer term, we expect affected endowments will find the right level of illiquidity for the new endowment environment. They will likely attempt to stay toward the higher end of target illiquidity levels by:

1. Tilting asset allocation toward return-enhancing alternatives like private equity
2. Preferring longer-hold assets aligning with private equity’s time horizon
3. Minimizing annual taxes by overweighting those that generate long-term gains taxed at lower rates, rather than consistent taxable short-term gains

In addition to the long-term role private equity will play in E&F’s, the “democratization” of PE is very likely to bring retail investors into this market as new buyers. New products that allow for smaller investors to invest in illiquid assets are emerging both in the US and Europe as regulations and structures increase the range of potential investors in this space. Over time, some estimates are that up to half of illiquid demand will come from this new source. We tend to believe that retail capital will flow to larger PE firms with more fundraising resources, which could further compress returns in larger cap PE strategies. However, this should provide a boost to smaller PE managers, who will eventually sell their portfolio companies into this market and be able to capture greater levels of multiple expansion at exit.

Our main conclusion here is that traditional PE investors may right size now, but they likely won’t abandon the consistently highest-returning asset class. Meanwhile, new investors who are gaining access could become a big source of demand in the future that will benefit returns in some parts of the private markets. In our view, private equity still benefits from some structural advantages, such as the ability to align interests, add value to portfolio companies, think more long-term than many public companies, get term leverage, and choose when to be fully invested. Private equity is thus likely to remain the best performing asset class in the future.

We started by highlighting that PE generates the highest and riskiest return stream. Below is the other factor that causes us to believe that now may be a better-than-average time to invest in PE. The chart below shows the annual PE return (blue bar) and the rolling 10-year performance vs. public equities (green dots). You can see both the excellent long-term performance and the uniquely poor last two years—the worst back-to-back returns in the last 22 years. In previous episodes of poor performance, subsequent years were recovery years. So far, that hasn’t happened this time.

1 Year and 10 Year Excess Return of Cambridge Associate PE & VC Index vs. MSCI ACWI3

We are not forecasting a monster year, but we do expect that the inherent advantages of PE noted above should continue to prove valuable to returns.

There are many nuances that our private markets team incorporates into their efforts to exploit opportunities that we’ve mentioned. However, we want to go on record suggesting that we believe today is as good a time as we’ve seen to consider increasing PE exposure if it fits your plan. In our opinion, we may look back on this period in 5-7 years as an unusually good opportunity. We also note that despite our views, timing PE is notoriously difficult due to the impossibility of knowing the investing environment for the next 4-5 years and the exit environment for the subsequent 5 years or so.

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

These 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

• Swift changes implemented by the Trump administration have led to increased market volatility and uncertainty.
• Recent tariffs imposed by the US on Canada, Mexico, and China have created significant economic uncertainty and negatively affected markets as we approach the April 2nd reciprocal tariff announcements.
• Economic indicators have weakened, with GDP growth expected to slow down and inflation predicted to rise, suggesting a challenging economic period may lie ahead.
• The administration’s focus on deregulation, including a regulatory freeze and efforts to rescind existing regulations, is expected to lead to legal challenges and further market unpredictability.
• Despite all this uncertainty we highlight the importance of maintaining a long-term investment focus amidst short-term volatility and avoiding hasty decision-making; stay focused on your investment goals.
• With that in mind, we are maintaining our strategic asset allocation with 65% in the All Country World Index (ACWI), 20% in hedge funds, and 15% in the Bloomberg Aggregate Bond Index (AGG).

Fast and Furious

In previous letters, we’ve mentioned a quote attributed to Vladimir Lenin:

“Sometimes nothing happens for decades, and sometimes decades happen in a week.”

We were referring to the rapid impact of AI on our world. Since Donald Trump’s re-election and return to the White House, events seem to be accelerating faster than ever.

Every new president promises change, but none has delivered as swiftly as Trump has in his second term. It is worth noting that he signed 26 executive orders on his first day back in office and has reached 92 as of March 20, 2025, in addition to the 220 he signed during his first term. For comparison, Biden signed 160 executive orders in four years, Obama 276 in eight years, and Franklin Roosevelt holds the record with 3,721 over 12 years. Keeping up with these changes has been challenging and exhausting for most.

There is significant debate among intelligent and honest people about the effectiveness and potential outcomes of most of Trump’s ideas. As new ideas emerge and are debated, they naturally create more questions and uncertainty. We anticipated significant change under Trump, but the pace of change has been dizzying even for us.

Let the Chaos Begin

On March 4, 2025, Trump’s first tariffs on Canada and Mexico took effect, along with an additional 10% tariff on China. The reasons given for these tariffs were sometimes economic and sometimes to punish a country for allowing fentanyl and other harmful agents to come into our country. Canada and China retaliated, and Mexico was expected to announce retaliatory tariffs. Markets are reacting negatively. Many were surprised that Trump went through with the tariffs on Canada and Mexico, who seemed to be calling his bluff. Similarly, the February 28 Zelensky conflict at the White House cast doubt on the Ukraine/Russia peace process, as Trump temporarily halted US aid to Ukraine and upset our European allies. A few weeks later, most of these tariffs have been changed (and will be again on April 2), and Zelensky and Trump seem to be back on the same team, depending on the day. The apparent chaos of recent weeks is causing concern both domestically and globally and has increased market volatility. This is likely to continue as tariffs increase and negotiations everywhere on everything continue.

While Tariffs are Still Below Historical Levels, They are Reaching the Highest Levels Seen in Nearly 30 years

US Duties Collected as a % of Total Imports1

With the Exception of China, the US Tariffs on the Rest of the World are Still Rather Low, Meaning If the Trump Administration is Serious About Increasing Tariffs, We May Have a Long Way to Go

US Effective Tariff Rate by Import Source Country, 12-month Rolling Average2

The most important tariff day looks to be April 2, when the US government plans to announce reciprocal tariffs. As we understand this undertaking, whatever tariff (including, in some cases, V.A.T) a country charges us is the tariff we will levy back on them. Ironically, this could either result in tariff wars or in a free trade relationship, depending on what tariff a foreign country chooses to charge us. The cone of possible outcomes around this is wide, increasing uncertainty. Several economic indicators have recently weakened, compounding the impact of this uncertainty and suggesting a challenging period may lie ahead for the economy and markets. The Federal Open Market Committee recently revised expected 2025 GDP growth down by 0.4% to 1.7% and inflation (core PCE) up by 0.3% to 2.8%. They expect tariff inflation to be “transitory” and left rates unchanged, noting that uncertainty has increased.

The new administration also is focused on removing regulations. In addition to implementing a regulatory freeze pending review and halting all new regulations, they aim to keep the total incremental cost of all new regulations in fiscal year 2025 to “significantly less than zero.” Agencies are directed to identify and rescind regulations inconsistent with Trump administration policies, and for every new regulation proposed, 10 must be identified for repeal. This leads to many de-regulation efforts being challenged in court, slowing their impact and likely sending some to the Supreme Court. It is a busy, unique, and chaotic time in Washington. The desired changes could lead to significantly better or worse outcomes, keeping markets on edge.

The Department of Government Efficiency (DOGE), which we hope can reduce the US government’s annual deficit by eliminating waste, fraud, and abuse within the Federal government, is off to a mixed start. While the website “polymarket.com/doge” suggests they have already identified $115 billion in annual savings, the media focus has been more on Elon Musk and the number of jobs potentially impacted. A respected research service recently increased their estimate of government worker layoffs before July 4, 2026, to more than 10% of current employees. This adds to current economic concerns and raises questions about the follow-on impacts, further exacerbating market uncertainty.

US stocks have accordingly fallen, dropping over 9% from peak year-to-date gains of nearly 5% to now sit near -4% for the year. Meanwhile, ten-year treasury bonds have rallied in price by about 3%, pushing the yield from 4.6% in January down to 4.2%, near the lowest since last September. This performance combination usually suggests a weakening economy and slowing earnings, ultimately pulling inflation down. Interestingly, while President Trump and his team believe targeted countries will pay the tariffs, most economists view tariffs as a tax that US businesses and consumers will pay through higher prices. Stocks could decline in either case, but if inflation rises rather than falls, the current decline in bond yields may be temporary.

S&P 500 Pulled Back to Pre-Election Level Following Strong Market Growth

S&P 500 Net Total Return (12/31/2023 – 03/31/2025)3

A Word of Caution

Before we get into what we are doing about this elevated uncertainty, let us tell you what we aren’t doing: we aren’t getting swept up in the short-term day-to-day uncertainty. When investors start making major decisions based on short-term changes in macro numbers, we think that is risky. We’ve recently read that the most important decisions one needs to make today include whether the US is going to become partners with Russia, how the Middle East will end up, how much tariffs will increase inflation, how badly the DOGE layoffs will impact the economy, whether US exceptionalism is dead and US equities should be underweighted, etc. We don’t profess to know the answers to these questions. Yes, we have hunches and opinions like everyone else, but we also have enough experience to know that we don’t know nearly enough to correctly predict any of these outcomes let alone the preponderance of them.

Making too many decisions is usually harmful to long-term returns. I’ll briefly share my first lesson on this. On Black Monday, October 19, 1987, the Dow Jones fell by 22.6%, the largest one-day percentage return on record. Many people believed this signaled that the US was entering a depression ala 1929, the previous largest one-day percentage decline (-13.5%). As a 20-something-year-old, how could I disagree? I read all the “analysis” of the day, which was very lopsided, suggesting it was a fait accompli. My then CIO, Dick Huson, admitted that he didn’t know but strongly encouraged us to appreciate that nobody else did either, and so we should stay the course. He noted that the drop was many standard deviations above average, and it was a poor time to sell (it turned out to be a 28 standard deviation event, equivalent to a man who is 300 miles tall!). One month later, the S&P 500 returned 7%, and three months after that, it appreciated 18%. There was no depression; instead, we had elevated volatility and attractive returns.

Another event worth mentioning is the Global Financial Crisis of 2008, the biggest peak-to-trough loss since the great depression. The S&P peaked on October 11, 2007, before the US housing bubble-inspired credit crunch brought the financial world to its knees. As the world watched, the Fed let Lehman Brothers collapse, and financial contagion threatened further collapses. Markets fell precipitously before cooler heads finally prevailed, but not before the market had fallen nearly 57% by March 9, 2009.  Four years later, the S&P had gained 150% (nearly 26% per annum) to recover to its previous high. Ten-year returns from the pre-crash high in 2007 were 104%, equal to 7.4% per annum.

Timing the exact moment to get out of and then back into the markets is very difficult. This is why we partner with some of the very best managers in the world and why we try to limit the number and size of decisions we make. The stock market can be volatile and can go down. Nevertheless, we have not found a liquid asset that can provide better, reasonably consistent, above-average long-term returns to hold in our portfolios. This is why we are careful not to get underweight equities and will only modestly overweight them if we believe a significant opportunity exists. When asked, we counsel others to do the same if they are trying to generate above-average long-term results.

Enough, what are we doing?

For now, we assume mainstream economists are correct in believing tariffs will negatively affect the US economy. Estimates are changing quickly, but aggregating estimates from different sources suggests that the US GDP is expected to slow down by 0.5% – 1% due to the expected newly implemented tariffs. This could lead to job losses of up to 200,000 on top of those laid off by DOGE, and consumer prices could rise by 1%. Combined with immigrant deportations and strict border control, this should reduce aggregate consumer spending. On the flip side, the current tariffs could raise $1.5 trillion over the next 10 years. A 10% universal tariff could raise $2 trillion, and a 20% universal tariff could raise $3.3 trillion over that period. However, these estimates do not account for potential retaliatory actions by other countries or the duration of the tariffs. Our economic future is murkier than it seemed three months ago.

Are we trimming our equity holdings, you ask? Not yet. Looking forward, we see continued productivity gains in the US and globally from the adoption and incorporation of AI within businesses. Some early adopters are experiencing radical productivity improvements, as noted in ARK Investments’ “Big Ideas 2025” report. They highlight how AI software engineering contributions have risen from 4% to 72% of work. In new drug development, the number of new hypotheses a research scientist could test in one year rose from 20 hypotheses tested in 2023 to 200 tested in 2024. ARK expects technological breakthroughs like these, and others in AI, Autonomous Mobility, and Humanoid Robots, to turbocharge economic growth over the next 5 to 10 years, potentially to as much as 7+% per annum. While this view is uncommonly bullish, AI is a very unique technology, and early adoption will accelerate productivity gains, living standards, and possibly markets.

One other area we are exploring is Europe. While the US is experiencing tremendous change, Europe is in the throes of generational change. We believe Europe’s newfound focus on self-reliance, more rational energy and fiscal policies, reduced austerity, less regulation, and more defense spending (much of these changes have been foisted upon them by a now undependable US) may allow Europe to emerge from what many perceive to be a self-induced 15- to 20- year malaise. The internal debate continues about whether Europe presents opportunities for additional investment in our portfolios.

Wrapping it Up

We have strayed further than intended in this letter. Our main point is that things are moving very fast. Volatility is likely to remain elevated for a time and will cause some investors to lose focus on their long-term goals and instead make unnecessary decisions that will likely need to be reversed. We try to avoid making too many decisions with poor information during these times and instead continue to look forward and stay focused on what the future world might look like. Skating to where the puck will be is always our goal.

Rather than make decisions under uncertainty, we believe now is a good time to look over the potential valley and ask ourselves how AI might impact the world in the next 3-5 years and what could that mean. We don’t know if markets will pull back as they did after the internet bubble or if the advancements this time are so significant that technology’s full valuation has not yet been realized. Combining an expected more volatile short-term period with a brighter long-term view, we will navigate this period by owning more hedges designed to capture market unease while partnering with the best managers globally and remaining invested for the long term. If the economy weakens and inflation decreases, bonds may perform better. Bonds could perform better still if the DOGE succeeds in cutting the budget deficit.

Equities are expected to experience increased volatility this year as the political environment seeks a new equilibrium and tariff uncertainties get answered. While tariffs may slow economic growth and boost inflation—potentially triggering stagflation fears—the expected productivity gains and growth benefits from AI adoption should help temper any excessive market pessimism.  This period should be temporary. Subsequently, we can imagine a scenario where conflict fatigue leads to a calmer global environment. In this scenario, the potential success of the DOGE combined with lower taxes, less regulation, and more efficiency may allow the US to ease its tariff program, creating a more favorable cycle for both global GDP and equity markets. As we move forward, we will continue to share our thoughts and insights with you. For now, we are staying close to our strategic asset allocation targets: 65% in the All Country World Index (ACWI), 20% in hedge funds, and 15% in the Bloomberg Aggregate Bond Index (AGG).

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

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.

These 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 Hard Part

This quarter, we aim to address a topic that will likely elicit a range of opinions: the fiscal trajectory of the United States, the impact of the newly formed Department of Government Efficiency (DOGE) on that trajectory, and their implications for the markets. Driven by our concern over the nation’s unsustainable fiscal path, we are committed to offering a hopeful and constructive perspective, with the goal of providing a balanced and thoughtful analysis.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 4th Quarter 2024 CIO Commentary.

Not So Fast, My Friend

Lee Corso was born in 1935 in Cicero, Illinois, the son of immigrant parents. After a long career playing and then coaching college football, he was hired by ESPN in 1987 as an analyst for its Saturday “College Game Day” program where he has been a fixture ever since. Lee Corso may have seen more college football than any person alive. At the end of the show each week, analysts predict which team will win different games. When it’s Lee’s turn to make a pick, and he disagrees with someone ahead of him, he will often say, “Not so fast, my friend,” and then explain why the other team will win the game. He isn’t always right, but he always has good reasons and is usually worth watching and listening to.

As we observe markets today, the persistent climb through the end of August is beginning to give us that “Not so fast, my friend” sense. Make no mistake, we have been bullish for quite some time, even up to and including last quarter’s letter. What is changing for us is the level of the market versus our perception of the increasing level of uncertainty. Markets do not like uncertainty. This is why we often see them make most of their election year gains in the fourth quarter, particularly when the incumbent party wins. The uncertainty of the outcome constrains the markets. Investors are not sure if the stocks to own are the ones that would likely benefit from one party’s proposed policies. Until the outcome of the presidential race becomes more apparent, investors often sit on the sidelines. Once clarity returns, markets usually benefit. It is also worth noting that, seasonally, the October–December period is the strongest of the year.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 3rd Quarter 2024 CIO Commentary.