In April, news broke that Harvard University, steward of the largest academic endowment in the United States, was quietly working to offload $1 billion in private equity fund stakes. The sale, led by Jefferies and reportedly headed to Lexington Partners, didn’t make front-page headlines. But for anyone involved in fund finance or secondaries, it was a signal — one with broader implications than first meets the eye.
It was a reminder of something fundamental that fund financiers, underwriters, and credit professionals must confront: when you lend into a market dependent on a small pool of institutional capital, your risk is broader than just the fund manager. It transcends into the LP roster, the fund strategy, and the market’s ability to absorb macro risk.
The illusion of stability
In 1985, David Swensen pioneered an approach to endowment investing that transformed the institutional investment landscape and became known as the “Yale Model.” Emphasizing diversification and an equity orientation to take advantage of Yale’s long time horizon, Swensen expanded Yale’s portfolio into alternative assets such as hedge funds, real estate, timber, and private equity long before such an approach became standard.
Other large money managers (insurance companies, endowments, sovereign wealth funds) soon replicated the approach and ultimately have long been viewed as anchors or “evergreen capital” in private markets. Stepping in during lulls in fundraising cycles and taking bets and bearing risk that other institutional investors have been unwilling to provide. Their commitments are large, long-term, and often seen as safe, something steady to hold onto despite a turbulent public market.
But Harvard’s decision to pursue a secondaries sale underlines a different truth. A new risk has emerged for legacy LPs.
Lack of IPO’s, tariffs, M&A and other macro trends have slowly begun to creep into the institutional investment community, especially those overexposed to private markets. The current political regime hasn’t been all too friendly to an investor base providing the stools for private market participants to stand on. Harvard’s $53 billion endowment, nearly 40% allocated to private equity, showcases a a staggering concentration in a relatively illiquid asset class, one that relies on successful exits, rising valuations, and a steady pace of distributions.
None of those conditions are guaranteed today.
In fact, the global private market secondary market surged to an all-time high of approximately $162 billion in 2024, up 45% from the previous year. That rise was fueled by institutional sellers seeking liquidity amid delayed distributions and macro uncertainty. LP-led transactions alone made up $87 billion of that total — more than half of all activity.
The takeaway? Stability is situational. Concentration is structural.
When LPs move, everyone feels it
For banks and credit providers offering NAV, Subscription lines, and other forms of fund finance, the question becomes: how exposed are your borrowers to liquidity-constrained LPs? And what happens when one of those LPs — maybe their largest — suddenly is positioning for a secondary sale?
In theory, a secondary sale like Harvard’s shouldn’t disrupt fund performance. But in practice, it can create friction. Secondary buyers often negotiate discounts, reshuffle fund governance dynamics, and expect greater visibility or control. Consent rights may be triggered. GP-LP relationships deteriorate.
At scale, if enough secondaries start to flow, the entire profile of a borrower can shift quietly, quickly, and without the lender’s direct involvement.
The concentration trap
Concentration risk isn’t new. Every underwriter is trained to think about it — diversifying exposure by sector, geography, and counterparty. But in fund finance, it often hides in plain sight.
It hides in LP rosters where a few names account for most of the capital if LPs are investing out of Family offices or tax remote legal entites . In portfolios that over-index on a single asset class or strategy. In GPs who’ve built deep ties with a few endowments, only to watch them retrench when things get tight.
Harvard isn’t alone. Yale, for example, has roughly 45% of its endowment in private equity. It’s also exploring a secondaries sale — another sign that even top-tier LPs are revisiting their exposure. In 2024, only 33% of secondary transactions were driven purely by liquidity needs; more than half were strategic rebalancing decisions.
This is the moment for fund lenders to revisit their models. Because the real risk isn’t that one LP exits — it’s one that no one saw coming.
Data lag is no longer acceptable
The problem, for many lenders, is visibility. Even today, most banks and credit providers manage fund risk with quarterly updates, hard-coded Excel spreadsheets, emailed PDFs, and outdated internal systems. By the time a problem is flagged, it’s already outdated.
In this environment, where liquidity decisions are made faster and fund structures are more complex and fluid, the lag can equate to an expensive default or restructuring.
Lenders need tools that let them:
- Asses exposure thresholds across LPs, asset types, and fund strategies
- Receive automated alerts when concentrations shift and portfolio performance declines
- Simulate downstream impacts when an LP redeems or sells
Understand real-time borrowing base metrics and valuations triggersThis is where modern credit infrastructure makes the difference. A Credit Management System (CMS) like Finley connects, contextualizes, and makes data actionable.
What modern risk management looks like
Risk isn’t static, and neither should your infrastructure be.
To navigate risk today, lenders need more than sharp underwriters and costly counsel. They need systems that evolve with the market, systems that see around corners.
At Finley, we’ve seen firsthand how bespoke fund structures and delayed updates lead to underappreciated risk. Our platform is built to solve for this: it gives lenders the visibility, automation, and monitoring needed to make confident decisions, even in a landscape as unpredictable as this one.
In short: it’s not just about having data. It’s about knowing what to do with it, when it changes, and how to act before the market does.
The future of fund finance: more dynamic, more transparent
There’s a broader shift happening here.
Fund finance, as a whole has matured dramatically in the last decade as newer players entered the market and financial engineering exploded. What began as a niche lending product is now a core part of how private capital operates. But with that growth comes responsibility: the infrastructure has to keep pace with the complexity.
Harvard’s sale isn’t the first of its kind, and it won’t be the last. As secondaries volumes continue to rise, and as more LPs adjust their allocations in response to market, political, and regulatory pressure, lenders will need to rethink what baseline risk looks like.
And the smartest firms won’t just react. They’ll prepare.
They’ll invest in systems that let them adapt quickly, manage exposure proactively, and deepen their understanding of borrower dynamics — not just during underwriting and origination, but across the entire life of the facility.
