Category: Insights

Executive Summary

• Private foundations are sustaining payout levels well above the 5% minimum, supported by recent strong market performance.
• However, forward-looking return expectations are moderating, while multi-year grant commitments remain elevated.
• This is forcing foundations to reassess the strategic questions around short-term grantmaking and long-term sustainability of the foundation assets.
• TIFF analysis highlights long-term purchasing power erosion, not short-term liquidity, is the major risk for foundations.
• Foundations should periodically reassess and scenario test portfolio return expectations and grantmaking plans and flexibility to ensure sustained long-term mission capacity.

The Current Environment: Capacity Has Expanded, But So Have Commitments

Recent data from the 2025 Report on Private Philanthropy indicates that private foundations paid out approximately 7.1% of assets in 2024, well above the statutory 5% minimum requirement.1 At the same time, many foundations continue to emphasize multi-year, targeted grant commitments that extend support and obligations several years forward.

This environment has been shaped by several years of strong public market returns. Asset growth has supported elevated grantmaking and, in many cases, longer-dated commitments. Boards appropriately leaned into mission impact.

However, forward-looking capital market assumptions are more measured than the realized returns of the recent past. For boards and investment committees, the key question is not whether foundations can afford elevated spending today, but whether it is sustainable across a full market cycle.

Structural Trade-Off: Real Return vs. Spending

At its core, sustainability is a function of basic arithmetic. For a foundation to preserve its purchasing power over time, the portfolio’s long-term return must cover both the spending rate and inflation. However, if spending plus inflation exceeds the portfolio’s long-term return, purchasing power will erode over time.

This erosion can be difficult to detect in certain environments, particularly during steady or rising markets. In these conditions, the impact may appear modest. Portfolios may continue to grow in nominal terms, while their real value (e.g., adjusted for inflation), and therefore future grantmaking power, slowly declines.

The dynamic becomes more consequential when market declines coincide with elevated spending and fixed multi-year commitments.

The most challenging scenario occurs during a material drawdown, when several forces compound at once:

• Asset values decline.
• Grant commitments remain fixed in dollars.
• The effective payout rate rises as a percentage of assets.
• The capital available to compound in recovery is permanently reduced.

Liquidity Isn’t the Risk—Erosion Is

Modeling representative private foundation portfolios under base case and stress scenarios shows a consistent pattern. Even when obligations remain fully fundable, maintaining elevated spending through a significant market decline materially accelerates long-term real erosion.2

The risk facing many foundations is not an immediate liquidity shortfall. It is the amplified long-term cost of maintaining fixed withdrawals during periods when assets are temporarily impaired.

Key Considerations for Boards and Investment Committees

As foundations navigate a normalizing return environment, several considerations may warrant renewed attention to ensure that mission ambition and portfolio capacity remain aligned across a full cycle:

• Alignment between spending and forward-looking return assumptions
  Is the current payout level supported by long-term real return expectations rather than recent experience?
• Interaction between commitments and portfolio behavior
  How would a material market decline affect effective withdrawal rates given existing multi-year obligations?
• Flexibility within grantmaking
  What portion of spending is structurally committed versus discretionary, and how clearly is that flexibility defined?
• Reassessment framework
  Have conditions been articulated in advance under which spending or portfolio risk tolerance would be revisited?

Conclusion

Private foundations have benefited from a period of strong market support. As conditions normalize, elevated payout levels may remain appropriate, but their durability depends on deliberate alignment with long-term real return capacity.

The most resilient institutions are not those insulated from volatility. They are those that define in advance how spending, commitments, and portfolio risk tolerance interact so that decisions made during periods of stress are disciplined rather than reactive, and long-term impact is not unintentionally impaired.

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.

In FY25, the NBOA-Commonfund Benchmarks Study of Independent Schools reported annual returns of 11.5% across the peer set, bringing 10-year average returns to 7.7%. Independent schools remain concerned about budget headwinds from both inflation and enrollment pressure, despite strong market performance helping to increase operating budget support from the endowment and a moderate increase in annual gift budget support. Donor trends appear to be shifting, with major gifts becoming increasingly concentrated among a smaller group of donors. OCIO usage continues to increase, in part as a solution to budgetary pressures and increasing portfolio complexity.

Key themes from the report include:

• Strong Investment Performance: Investment performance remained strong in FY25, with an average annual return of 11.5%, modestly below FY24’s 12.3% but still well above long-term returns for most institutions (average ten-year return is 7.7%). Size-based performance differences have reversed again, with larger endowments outperforming smaller endowments after smaller endowments outperforming FY23-24. Smaller endowments under $10M returned 10.9% in FY25, trailing the $10M–$50M and $50M+ cohorts at 11.6%. Over a three-year horizon, the smallest cohort outperformed, returning 12.7% versus 11.2% and 11.1% for the $10M–$50M and $50M cohorts, respectively. These performance shifts predominately reflect allocations of public vs. private equity, with larger endowments typically having larger allocations to private assets.
• Operating Budget Support from Endowments Increased while Spending Rates Remained Steady: Institutions are increasingly relying on endowments to support operating budgets (total average 7.1% in FY25 vs. 6.4% in FY23), even as total average stated spending rates have remained steady at 4.3%. This implies that the growth in operating budget support from the endowment is driven by strong investment performance rather than increased spending. This trend is most pronounced among the $50M+ cohort, where operating support from endowments rose from 7.8% in FY23 to 8.5% in FY25. While the short-term trends have increased, they remain below the 2000s when both spend rates and operating budget support from the endowment were higher.

NBOA Stated Spend Rate and % Operating Budget from Endowment (FY05-FY25)

• Increase in Annual Giving Budget Support: Operating support from annual giving has also moderately increased over the past three years (6.8% in FY25 vs. 6.5% in FY23), particularly in schools with the largest endowments. Similar to endowment support, the increase in annual giving likely reflects strong market performance, as donors tend to give more during periods of investment gains.
• Donor Trends Shifted: While overall gifts (annual giving or endowment) vary from year to year, there is a clear trend that a majority of gifts are coming from fewer donors. Historically, 80% of donations came from 20% of donors, whereas now roughly 90% of donations come from just 10% of donors. Institutions are also seeing a continued shift toward restricted gifts, as donors are more focused on the impact of their gift. Despite the increase in dollars, median gifts per student have remained relatively stable. Fundraising remains a top concern for schools.
• Increased OCIO Involvement: Use of OCIO providers by secondary schools continues to expand, regardless of endowment size. As independent schools face operating budget pressures and constrained resources, the investment landscape becomes increasingly complex with the operational needs of alternatives, regulatory changes, and increased market volatility. OCIO providers can provide access to constrained investment opportunities and diligent risk management, freeing up time for investment committees and business offices.
• Inflation and Enrollment Headwinds Persisted: Enrollment continues to be the top concern facing secondary schools, especially those with endowment assets under $10M. Demographic shifts are contributing to student population declines. However, enrollment declines disproportionately affect New England, New York, and New Jersey while the rest of the country experiences enrollment increases. Additionally, inflation remains a challenge, increasing operating costs and placing additional strain on budgets already more reliant on endowment and gift support.

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

• 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.