Kevin Warsh’s strong views on economic governance, and his precocious nature, will hold him in good stead as he takes the reins of the US Federal Reserve at a time where concerns over cost of living, inflation and upward mobility are a test of President Trump’s second term. For investors, his views on the conflating of monetary and fiscal policy are key considerations to watch. 

Standing tall with a swagger befitting the youngest ever member of the Federal Reserve Board Kevin Warsh took the stage of the Top1000funds.com Fiduciary Investors Symposium at Stanford University last September.

A confident and powerful communicator, he spoke to the audience for an hour in a session for global institutional asset owners held at the elite university under the Chatham House rule.

In his more public addresses, however, Warsh has been critical of the Fed, and other central banks, for blurring the line between monetary and fiscal policy, calling it out as a looming threat and making the economy more vulnerable to shocks.

“Each time the Fed jumps into action, the more it expands its size and scope, encroaching further on other macroeconomic domains. More debt is accumulated…more capital is misallocated…more institutional lines are crossed… risks of future shocks are magnified…and the Fed is compelled to act even more aggressively the next time,” he said in an April speech to the G30 reinforcing the comments he gave in September.

Warsh was speaking at the Top1000funds.com Stanford event thanks to Conexus Financial’s longstanding relationship with Professor Stephen Kotkin, a leading historian and the Kleinheinz Senior Fellow at the Hoover Institution.

Warsh, who among other appointments, is the Shepard Family Distinguished Visiting Fellow in Economics at Hoover and a colleague of both Professor Kotkin and Condoleezza Rice who leads the Hoover Institution.

“Kevin cuts an impressive figure. And he has his work cut out for him. Forget about interest rate controversies: the challenges for the Fed, which Kevin and others have pointed out, are far deeper, from its non-statutory mission creep to its ballooning balance sheet and besieged models for how the economy operates,” Kotkin told Top1000funds.com following Warsh’s appointment as President Donald Trump’s nominee for Federal Reserve chair on Friday.

“And then there’s the matter of how banking regulations perversely incentivise the very systemic risk they are supposed to limit. Godspeed!”

Kevin Warsh and Amanda White

In his work and public comments Warsh stresses the importance of credible monetary policy, clear rules, honest communication with the public, and institutional accountability.

At the core of Warsh’s comments on stage at Stanford, and in speeches since, is economic governance.

In his widely touted G30 speech in April he said that strengthening economic performance requires significant improvement in the government regime. And that means new ideas and reforming key economic institutions.

“Changes in the role of the US central bank have been so pervasive as to be nearly invisible. The Fed has assumed a more expansive role inside our government on all matters of economic policy. And moved into matters of statecraft and soulcraft, too. In my view, forays far afield for all seasons and all reasons have led to systematic errors in the conduct of macroeconomic policy. The Fed has acted more as a general purpose agency of government than a narrow central bank,” he said in the speech.

“Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending.

And the Fed’s outsized role and underperformance have weakened the important and worthy case for monetary policy independence.”

A student of the late free market economist Milton Friedman while completing his undergraduate degree at Stanford, Warsh went on to work at Morgan Stanley, served as special assistant for economic policy to the president and as executive secretary of the White House National Economic Council for George W Bush.

He was appointed by President Bush to serve on the Fed board in 2006, aged only 35, making him the youngest member in the history of the Federal Reserve.

“Kevin is the definition of precocious, having studied with Friedman, George Shultz, and Condoleezza Rice as an undergraduate at Stanford University, before earning a degree at Harvard Law School, working on Wall Street, serving in the George W. Bush White House, and initially joining the Federal Reserve for a term at just 35 years old,” said Kotkin.

In a piece published by the Hoover Institution on Saturday, Rice – who has also spoken at the Top1000funds.com Stanford event the past three years – praised Warsh’s leadership, saying:

“We will benefit from his steady, principled leadership. Kevin is a dedicated public servant with the intellect, experience, and judgment to lead the Federal Reserve. He understands the central bank’s key role for the United States and our allies around the world.”

Reforming economic institutions

Warsh has long been critical of the Fed for being involved in the “messy political business” of fiscal policy, putting his money where his mouth is and resigning from the Fed board shortly after the QE2 announcement in 2010, a decision he publicly disagreed with.

Of that time, he has said that cutting interest rates to near zero in response to the 2008 crisis and seeking new ways to make monetary policy looser and bring liquidity to illiquid markets, was an appropriate “crisis-time innovation” that he strongly supported.
But he criticises the Fed for not correcting the position and continuing with QE, now a feature of central banks around the world.
“It’s no longer obvious whether monetary policy is downstream or upstream from fiscal policy. Irresponsibility has a way of running in both directions,” Warsh said in his April speech to the G30.

“Fiscal dominance – where the nation’s debts constrain monetary policymakers – was long thought by economists to be a possible end-state. My view is that monetary dominance – where the central bank becomes the ultimate arbiter of fiscal policy – is the clearer and more present danger.”

In a 2022 paper with Hoover colleague John Cogan, Warsh set out an economic governance framework that “befits the country’s new challenges”.

The paper, Reinvigorating economic governance: A framework for American prosperity, outlines potential economic reform and questions whether extreme action – such as constitutional reform – are necessary to help restore fiscal prudency and limit federal spending.

The proposed framework advocates for putting the creation and diffusion of ideas at the centre stage, including subjecting monetary policy to strict scrutiny. In particular, the paper calls for an assessment of the Fed’s regime change where it has extended the scale and scope of its activities, all the while running inflation far outside the Fed’s price-stability objective.

The paper says that a chasm between the current economic regime and a sound economic governance plan is large and growing, and recent Warsh speeches have reinforced the view that strengthening economic performance requires significant improvement in the government regime. And that means new ideas and reforming key economic institutions.

“Some may believe the biggest threat to our economy comes from outsiders who seek to change the status quo…I don’t agree…I believe the predominant risk comes from choices made inside the four walls of our most important economic institutions,” he said in the April speech to the G30.

“[In] my view, strengthening economic performance requires significant improvement in the governance regime. That means new ideas.”

 

Photos by Jack Smith

Kevin Warsh and Stephen Kotkin; Kevin Warsh and Amanda White at the Fiduciary Investors Symposium, Stanford University, September 2025.

 

For more information on the Fiduciary Investors Symposium series click here.

 

Efficiency, cost savings and less direct investment in private equity are key tenets of investment strategy at C$182 billion ($133 billion) Alberta Investment Management Corporation (AIMCo) under the leadership of new chief investment officer, Justin Lord.

Lord has been at AIMCo for 14 years, climbing the ladder to lead the public markets division before he was promoted to the helm in July last year, tasked with steadying the ship after a tumultuous 2024 when the provincial government of Alberta terminated the entire 10-member board and its CEO Evan Siddall citing underperformance and rising costs. [See Chaos at AIMCo as politicians take control].

In an interview from AIMCo’s Edmonton offices, Lord tells Top1000funds.com that centralising the investment process has been a key focus in his first six months as CIO, particularly around liquidity management in a quest to boost efficiency across the platform, add value and increase investment performance for the pension funds, endowments and insurers AIMCo serves.

“Sometimes efficiency is the easiest form of alpha,” he says.

Liquidity management supports both efficiency and the ability to allocate capital when attractive opportunities arise, he continues.

Positioning the portfolio

Lord is comfortable with AIMCo’s current liquidity levels in the context of today’s valuations and does not view markets as broadly overvalued. Still, he notes that the rapid evolution of AI presents both significant opportunity and emerging risk, and is an area the investment teams are monitoring closely alongside inflation, geopolitical volatility and trade uncertainty.

These risks aside, he believes three main factors will support asset values and markets in 2026.

AI and the proliferation of technology across industries will continue to drive capital expenditure and support growth and earnings expectations in large cap equities; a shift in monetary policy as the Federal Reserve moves to cut rates will impact asset values and fan favourable fiscal and regulatory conditions that support global economic activity.

“These factors – AI, lower rates and favourable fiscal and regulatory conditions – will ensure the continuation of earnings growth, certainly in public equities,” he reflects, adding that tactically, AIMCo remains close to home in its target asset mix.

“Where we see opportunities to deviate from our target asset allocation include infrastructure, pockets of private credit in respect to current credit spreads, and also, to some extent, real estate over the next couple of years.”

Perhaps one of the most significant changes is underway in private equity where AIMCo will increasingly chip away at direct investment in favour of fund and co-investments in a strategy designed to better tap the benefits of collaboration with private equity partners. In 2023, around 36 per cent of the private equity program was in direct and co-investments and around 64 per cent in funds.

Direct investment requires AIMCo’s own due diligence yet leading private equity firms have developed sophisticated operating platforms with expertise in areas like digitisation, supply chain management, AI applications and nurturing talent that help create value in the underlying portfolio companies on the platform, he says.

“Through fund and co-investment, we can tap into GP management capabilities that successfully operate the underlying business.”

Lord believes the diversification benefits of private equity are particularly pronounced today given private equity has underperformed public markets and benchmarks. “We view private equity as a diversified return generator in the portfolio but even more so today given the backdrop of concentration and current valuations in large cap, liquid public markets.”

He’s also bullish on opportunities and returns picking up as liquidity returns to private equity in general.

Like in private equity, he believes private credit represents a significant growth opportunity but given tighter spreads and increased competition, is being selective in this key driver of long-term value.

While other Maple 8 institutions develop a total portfolio approach, Lord explains that AIMCo’s key objective is to meet the management of individual client portfolios. Because each one has a unique and different objective, risk appetite and nuance to consider, it makes TPA challenging.

“If anything, TPA is at a client level at AIMCO where we are focused on portfolio management for individual clients to reflect their circumstances regarding risk, portfolio construction and strategies like rebalancing and hedging,” he says.

Costs were also at the heart of the decision to scale back AIMCo’s international expansion and close recently opened offices in Singapore and New York. [See AIMCo sheds more costs with NYC, Singapore offices the latest casualties]

Lord maintains that AIMCo can provide value to its clients and access to opportunities without boots on the ground in these locations. Offices in Edmonton, Calgary, Toronto and London secure the coverage and access to the curated relationships AIMCo seeks in the US, Europe and Asia, he says.

“A geographical footprint divided between Calgary, Edmonton, Toronto and London is optimal to continue to deliver opportunities.”

He does float the idea, however, of “additional internalisation” of AIMCo’s public markets operations in Alberta and Toronto. London primarily houses private asset class teams.

Lord points to high client satisfaction scores as proof that AIMCo’s investment strategy and refreshed governance is delivering for client funds.

The recent confirmation of former Alberta civil servant Ray Gilmour as CEO is a force of stability rather than symbolic of the asset manager being drawn closer to the government and political pressure.

“With the board and executive positions filled, including the recent announcement of Ray Gilmour’s permanent appointment as our CEO, there is certainly a sense of optimism within the organisation to start the year.”

Lord is also quick to rebuff any suggestion that the asset manager will bow to political pressure to invest more in Alberta: risk and return priorities must be met before investing more in AIMCo’s backyard.

“AIMCo is operationally independent from the government through all aspects of our business. Particularly as it relates to our autonomy over investment decisions which are guided by our internal processes, sound financial principles and our clients’ long-term objectives,” he concludes.

A recent visit by Top1000funds.com to Apollo Go’s robotaxi operation in Wuhan offered a ground-level view of how China is building a parallel technology system in response to US-led restrictions. The opportunity set across technology and especially AI adjacent industries is expanding exponentially, but governance and geopolitical constraints could make it hard for foreign asset owners to participate in the upside. Darcy Song reports. 

On the bustling streets of Wuhan, a white SUV looks slightly out of place. Not only because it’s diligently following the road rules in a city known for having some of the most unpredictable drivers in China where sudden lane changes and other high-risk manoeuvres are regular occurrences, but also because there’s no one behind the wheel.  

A closer look reveals two passengers lounging in the massage-enabled backseats experimenting with the in-car karaoke function. Later, the vehicle pulls into a designated parking spot near a dental clinic, its automatic door slides open to let the riders out before merging smoothly back onto the road to meet its next customer.  

The vehicle is a part of the latest generation of driverless fleet from Baidu’s autonomous driving subsidiary, Apollo Go. It hosts close to 1,000 robotaxis on the road servicing consumers of Wuhan, which was picked strategically as a major testing hub due to its extensive car parts manufacturing capacity.  

This latest model (RT6) is equipped with an in-house developed artificial intelligence model and cost less than 230,000 yuan (around $33,000) to make due to domestically-sourced automobile parts and radars. This is about one-sixth of the cost to produce a Waymo vehicle, Alphabet’s robotaxi that services the citizens of Austin and San Francisco, as Top1000funds.com learnt during a recent visit to Apollo Go’s factory. 

Each RT6 is equipped with seven sensors for environment detection, which were previously imported from the US for $100,000 per piece, says a Baidu staff member at Wuhan who requested anonymity. While there has been a significant drop in price for imported sensors, Chinese-produced ones are still cheaper and could cost as low as 1000 yuan ($143) each.  

The factory visit to Apollo Go is a keyhole to the microcosm of a parallel, self-sufficient ecosystem that China is building in the technology arms race with the US, with the ultimate purpose of freeing itself from relying on the US for crucial hardware or algorithms.  

For asset allocators, it could mean the chance to invest in an attractive thematic in a less-concentrated and richly-valued market compared to the US, as Chinese technology companies seek private partnerships to fuel expansion.  

The result is a bifurcated investor landscape. For some asset owners, governance and mandate constraints will continue to place opportunities in China out of reach. For others with fewer limits, the pressing question will be whether staying on the sidelines of investing in China carries its own risk as the next generation of tech champions mature largely outside of the Western institutional portfolios. 

The decoupling 

Signs of two parallel innovation ecosystems began to emerge between the US and China when it became clear technological dominance was crucial to the next global order.  

The battleground has been focused on advanced chips, with a slew of measures aiming to control US exports to China rolled out during the Biden administration and only accelerated under President Trump. International relations analysts suggest three critical objectives behind these measures: choking off China’s access to high-performing chips, preventing China from domestically producing alternatives, and mitigating US corporations’ losses by allowing China’s access to less cutting-edge chips.  

China, meanwhile, wants businesses to look inward for solutions. Despite Trump stepping back from the Biden-era export ban of Nvidia’s second-most advanced chip, H200, the government has reportedly asked tech companies to halt purchasing the chips as it decides under what conditions access will be allowed. It was also reported that Beijing is looking to mandate domestic chip purchases from providers like Huawei.  

A further injection of $48 billion last year announced by the Chinese government alongside major state finance institutions to the National Integrated Circuit Industry Investment Fund (better known as the Big Fund) to foster semiconductor supply chains and address critical bottlenecks, like high-bandwidth memory, is evidence that tech self-sufficiency has become an urgent objective.

The market is pushing tech companies which may aid this ambition into new heights. Moore Threads, a chipmaker touted as ‘China’s Nvidia’, surged 425 per cent in its first day of trading after a stunning IPO in December 2025.  

Appetite for foreign capital 

But outside of semiconductors, the race is wider-ranging – companies like Elon Musk’s Neuralink and robotics company Boston Dynamics are spoken about in the same breath alongside Chinese counterparts like BrainCo and Unitree Robotics.  

The presence of foreign investors can offer global visibility and facilitate knowledge sharing for Chinese companies. The latter has become more important as the state government turns conservative around protecting domestic IPs in critical technology industries.  

Apollo Go’s Wuhan branch frequently receives requests from foreign investment firms to tour its showroom, but it’s rare that the company get approvals from the local government to accommodate such trips. 

“The ideal partnership model for us in the future, should we launch our service in a new trial city, is to attract third-party investors who can bring in capital and together lobby the local policymakers,” a Baidu staff member says.  

“While the capital is important to us, we value the knowledge-sharing aspect in foreign partnerships more these days.” 

Robotaxi is another nascent yet attractive sector for investors due to its place at the nexus of AI, electric vehicle manufacturing and energy industries. While Apollo Go’s 250,000 weekly ride figure is short of Waymo’s reported 450,000 weekly trips, China is a deep market waiting to be explored.  

A taxi fare in Wuhan currently costs an average of 1.5 yuan per kilometre thanks to cheaper electricity powering the vehicles but could fall under one yuan per kilometre after robotaxi is popularised, cutting out the human cost, says the Baidu staff member. There is still huge room for growth before that objective becomes a reality.  

At the same time, Apollo Go has already launched trials of its service in Switzerland and Abu Dhabi and planned entries into the UK and Germany in 2026 through partnerships with Uber and Lyft and more overseas trial destinations like Australia and Southeast Asia in its sights.  

Investor reality 

With that said, the reality for foreign investors to tap into the well of opportunities in China is complicated due to significant government presence.   

State capital accounted for 52.5 per cent of the LP investments in Chinese private equity in 2024, according to figures from Chinese alternatives data platform Zerone, which would make a huge portion of innovative Chinese companies out of bound for allocators like US public funds which have country investment restrictions. 

Politicians from US states including Indiana, Florida, Texas, West Virginia and many more have forbidden their public funds from investing in companies where the Chinese government owns a large stake, or in the country altogether.  

Asian and Middle Eastern asset owners, though, have a different approach: Singapore’s S$434 billion ($337 billion) Temasek has 18 per cent of its portfolio allocated to China and 24 per cent to Americas, according to its 2025 annual report.  

Abu Dhabi-headquartered Mubadala Investment Company invests 13 per cent of its $330 billion portfolio in Asia, of which China accounts for half with more than 100 investments in the country. This month, the city’s other SWF Abu Dhabi Investment Authority ploughed into a $770 million China-focused multi-asset continuation fund as the lead investor, establishing itself as a secondaries buyer while others in the market look for exits. 

These investors are acutely aware of the delicate geopolitical environment as well as the need to spread their investment bets. As Qatar Investment Authority’s technology, media and telecommunications head Mohammed Al-Hardan said at a Doha conference last May, it was trying hard to “avoid situations that potentially jeopardise relations with the US” while actively seeking deals in China.  

And soon, all allocators have to decide on whether the risk of being left out of China may outweigh the risk of leaning in.  

Norges Bank Investment Management’s focus over the next three-years will target performance, technology and talent, and operational robustness. Monitoring portfolio managers, increasing trading efficiency and improving returns in real estate are also key priorities ahead for Norway’s NOK21 trillion ($2 trillion) oil fund, Government Pension Fund Global.

“The strategy sets out how we will work to become the best and most respected large investment fund in the world. We look forward to putting it into action over the next three years,” said chief executive Nicolai Tangen.

Strategy in equities will hone in on boosting trading efficiency and securities lending.

Equities comprise 70 per cent of the benchmark index and the strategy is shaped around market exposure and security selection (mostly managed internally) via enhanced indexing to systematically exploit inefficiencies and liquidity imbalances, and fundamental investing.

Trading the portfolio less, “better and smarter,” will help limit transaction costs. The renewed focus on trading will prioritise managing more trading flow internally before going to market, and extending holding periods when appropriate. It will also focus on closer collaboration between traders and portfolio managers, and taking advantage of new technologies and AI to further increase trading through automated algorithms. [See Inside NBIM’s AI playbook to hone investment edge and NBIM on AI cultural and organisational integration].

Securities lending is also a priority in the coming years. The team will continue to lend equities responsibly, seeking to capture more income from optimised collateral management and further diversification of counterparty relationships.

“Securities lending is countercyclical in nature, and we must be ready and willing to scale up when spreads widen,” states the fund.

Active security selection based on long-term thinking, better assessments of management quality, more knowledge sharing, and using AI to strengthen competitive advantages will become even more of a priority.

Expect NBIM to reduce exposure to companies it expects to underperform through a negative selection strategy, and integrate new mandates in developed markets to target managers with more flexibility to express negative views on companies in the benchmark index.

NBIM, which uses external managers in segments and markets where it believes they will enhance returns through specialised and local expertise it can’t replicate internally, will continue to search for the best external managers in emerging and developed markets.

“We will be disciplined and structured in internal capital allocation, prioritising investment mandates where we have high confidence that the decision-making process will continue generating excess return,” states the fund.

More automation in fixed income

In fixed income, the strategy will focus on automating fixed-income trading for all low-cost markets to increase efficiency and add value. NBIM will also boost investment in selected segments outside the benchmark to enhance return such as emerging market debt.

Fixed income accounts for 30 per cent of the benchmark and NBIM invests in a broad range of bonds issued by governments and related institutions, as well as companies, in a portfolio that seeks to dampen fund volatility, provide liquidity, and enhance returns via market exposure and security selection.

In the corporate bond portfolio strategy will focus on actively managing the portfolio to enhance return through issuer and sector tilts, while avoiding companies it expects to underperform. Strategy involves taking short- to medium-term positions based on fundamental research and temporary price differences of similar bonds.  NBIM also invests selectively in fixed-income segments outside the benchmark index as part of its allocation strategy.

Strategy in bonds and equities will continue to take allocation positions when abnormally large market dislocations create attractive opportunities. Such dislocations can occur when other investors are forced to act due to behavioural factors, regulatory requirements, or funding problems – exactly when NBIM argues its patient capital becomes most valuable.

Real estate to blur listed and unlisted allocation

In real assets, where NBIM is allowed to invest up to 7 per cent of the fund in unlisted real estate and up to 2 per cent in renewable energy infrastructure, the fund will focus on sector diversification.

It will increasingly delegate the operational management of the real estate portfolio, and gradually invest more through indirect structures.  Strategy will also blur the line between the listed and unlisted real estate portfolios to systematically evaluate whether listed or unlisted real estate provides the most attractive risk-adjusted return. NBIM will continue to invest in office and logistics, but also gradually invest more in newer and higher-growth sectors.

In energy and infrastructure, it will focus on expanding the portfolio to include a broader set of technologies and geographies. It will continue to invest directly in wind and solar power, and increase investments in distribution and storage as investment opportunities arise

Technology and data

Using data and AI to make better investment decisions will remain a key focus.

“We are all-in on AI, while recognising that success depends on teamwork not technology alone. Technology will augment our judgment, not replace it,” states the fund.

For example, NBIM will continue to develop its Investment Simulator to enhance investment decisions and provide feedback to portfolio managers. The tool will increasingly be used to make portfolio managers aware of their behavioural strengths and weaknesses.

NBIM seeks to cut manual processes in half  and will establish digital colleagues for routine tasks.

AI solutions will increasingly execute complex analytical tasks, and provide insights to enhance decision-making. Automation in real asset investment will also use AI tools to reduce manual burdens; speed up operations, and reduce the risk of potential errors.

Strategy over the next few years will also focus on culture. Staff must feel safe to go against the crowd and create mechanisms to challenge consensus thinking. Teamwork, feedback, intellectual honesty, and long-term thinking will be prioritised in a lean organisation, characterised by clear roles and collaboration to enable decisive action.

Direct engagement with companies will focus on governance, sustainable value creation, responsible business conduct, and robust risk management to enhance shareholder value, prioritising NBIM’s largest holdings and companies which hold the most significant risks.

NBIM will also continue to be the world’s most transparent fund.

“We place particular emphasis on increasing knowledge among the fund’s owners, the Norwegian people, to support informed public debate. This means being clear on what the fund is – and what it is not,” it states.

Arizona State Retirement System (ASRS) is seeking opportunities to buy private equity assets in the secondaries market.

ASRS’s $8 billion private equity allocation is focused on the upper-mid and lower-mid market where it mines a sweet spot of market inefficiencies and room for operations improvement. It also runs a growing co-investments program where it is on track to invest 30 per cent of the portfolio with deal flow from GPs as well as from other managers via a separately managed accounts.

That strategy is now complemented by a push into secondaries where ASRS has created another SMA and committed $250 million to invest exclusively in stakes being offloaded by other LPs using a portfolio construction that aligns with its overall strategy and sector focus.

Speaking during the fund’s December 2025 investment committee meeting, deputy chief investment officer Samer Ghaddar argued the case for investing in secondaries where buyers can pick up assets at a discount from sellers who are keen to offload a full basket of assets and where the money is already put to work and in the ground.

Secondaries buyout investments offer compelling long-term growth potential along with favourable cash-flow characteristics, he said, adding that the opportunity has spiked off the back of the rise in continuation vehicles which many GPs approach as an exit opportunity.

“We want to take advantage of GP and LP-led CVs to try and capture this dislocation,” Ghaddar told the investment committee.

Private equity is not overestimating the NAVs

The discussion also touched on investor concerns around whether the NAV of private assets represents true asset value – something that is only revealed at exit. Ghaddar pointed to recent findings that found 76 per cent of exits are higher than their reported NAV.

“We are super confident that private equity is not overestimating the NAVs. No GP wants their numbers to be taken down – they want them taken up, so they are very conservative on pushing up these NAVs.”

Europe accounts for 25 per cent of ASRS’s private equity benchmark. Now Ghaddar expects the portfolio to flip slightly more in favour of Europe where opportunities are opening up in a dislocation that could replicate private equity success in the US.

“We have partnered with a group of managers on direct co-investments across Western Europe,” he said.

Strategy is honed around partnering with specialist managers within technology, healthcare, and industrials, which all benefit from strong, secular growth trends. If single-sector specialists are not accessible, ASRS turns to multi-sector managers, but only where these possess specialist teams with extensive sector expertise. The team also favours managers which focus on value creation operationally rather than depending too heavily on financial engineering and managers.

Headwinds in private equity include unknowns around Federal Reserve policy and the inflation outlook; a difficult fundraising environment, and longer timelines from fund launch to close that are weighing on managers’ ability to raise and deploy capital efficiently.

Still, meaningful tailwinds are also supporting the asset class like the fact that public market valuations remain elevated and continue to trade at a substantial premium to private markets. Additionally, trustees heard that acquisition multiples across many buyout segments have compressed relative to their peak three years ago, creating more attractive entry points for investors.

The recent pickup in M&A activity also reinforces this improving backdrop, and offers another encouraging sign that deal flow is strengthening. The committee also referenced another tailwind in the guise of the democratisation of private equity as the asset class is increasingly found in the portfolios of to high net worth investors, amongst others, meaning that GPs are not just reliant on institutional money. [See Litigation, fees and structures: Why 401(k) plans won’t jump into alts, yet]

Tactical reduction in public equity

ASRS recently tactically reduced its public equity allocation in response to stretched valuations and concerns of what Ghaddar called a “crack in the system”. The fund, which has a target 44 per cent allocation to public equity, lowered its exposure by 2 per cent, equivalent to $1.2 billion, in a  rebalance that will go to fixed income.

The tactical committee meets every month and has been vocal on the risk of today’s high valuations since October.

Public equity returns over the one-year period hit 17 per cent.

Arizona runs an enhanced indexing strategy that takes very little active risk in the portfolio. Strategy is focused on compounding a small excess return, targeting a 25 basis points out performance for the asset class that equates to around $70 million in value add above the benchmark returns each year.

The public equity benchmark is two-thirds US equity and one-third international – ASRS doesn’t invest in China or Hong Kong stocks.

The US remains a core focus, however trustees heard that Europe offers meaningful opportunities for diversification and for narrowing the gap in both exposure and performance. Two-thirds of the $29 billion portfolio is managed in-house; tech stocks make up the majority of the benchmark and Cole Smith, senior public equity portfolio manager noted that although AI fatigue set in in 2025, the portfolio is still benefiting from strong corporate earnings each quarter.

“Sharp corrections can happen when the market is this rich. Earnings are the biggest driver of equity markets so it bodes well,  but we’ve seen the third consecutive year of double digit growth in equity in 2025,” he said.

A few key issues are front of mind for the private markets team at the Investment Fund for Foundations (TIFF) Investment Management. The $9 billion asset manager, which serves around 500 foundation and endowment clients in the US, allocates around $3 billion to private markets and is famed for its venture and private equity allocation.

One is to ensure TIFF remains on the right side of the emerging winners and losers in the AI transformation, explains Brendon Parry, who joined TIFF in 2011 and serves as head of private markets, deputy CIO and managing director.

Fearful of missing out, investors have ploughed into AI and snapped up assets which have opened the door to mistakes like overpaying for companies that don’t prove as successful as they hoped, or even investing in fraudulent companies, he tells Top1000funds.com.

Positively, he notices managers intentionally layering AI onto existing businesses in ways that will solve internal pain points and increase efficiency. But he also predicts a gulf opening between VC-backed AI native companies and a cohort of also-rans, particularly those that date from before the most recent AI wave.

For example, companies offering software-as-a-service could potentially struggle to harness the efficiencies of rolling out AI compared to an AI-first competitor, which will impact their ability to retain customers and grow, he suggests.

“We generally feel confident about the companies we own in sectors most affected by AI transformation. However, when you examine the population of venture-backed companies that were started before this big AI wave but also missed the exit window in the hype cycle in 2020-2022, the question now is: are they going to be destroyed by an AI native company or be able adapt and compete against this wave of AI native businesses?”

Concerns about venture exits and NAV loans

Parry highlights that the exit market for private equity appears more buoyant today as more portfolio companies start to hire bankers and look to test the market.

But he says exits remain slow for venture-backed companies, weighed down by the mixed performance of companies post-IPO. That backlog is leading VC-backed companies to stay private for longer, delaying pushing for the exit because of the risk of selling out at unfavourable prices.

But he says holding off on exiting requires ensuring that the underlying portfolio is healthy, and a company is still creating value and growing in EBITDA.

“The companies in our portfolio are still accruing value and, at some point, will exit. The challenging exit market today is not top of mind for us because we believe our portfolio companies are still heading in this right direction,” he says.

So-called net asset value (NAV) loans whereby private equity investors borrow against their portfolio’s underlying assets to provide liquidity, extend investment, or offer early returns to investors are also a concern.

He is more comfortable with NAV loans being used to re-invest in the underlying portfolio, particularly with follow-on M&A in existing portfolio companies. But he doesn’t want the extra capital raised from LPs to be used as a source of funds to get cash back to LPs early.

It’s a trend that has spiked as more investors borrow against their private equity portfolios to raise cash since the slowdown in dealmaking activity has impacted their ability to exit trillions of dollars in older deals.

Avoiding these risks requires proper parameters and restrictions around NAV loans as well as LP advisory board approvals and disclosure, Parry says.

“We are not comfortable with NAV loans being used to generate liquidity to satisfy LPs,” he reiterates. “In a fund-level NAV loan, you are cross-collateralising all assets and adding a degree of risk. We are very careful about this.”

Access to the best managers

Parry oversees an annual VC and PE pacing model of around $100 million and $150 million, respectively. Strategy is focused on lower to mid-market opportunities in private equity, and early-stage venture capital. Typically, client endowments will have a 15-25 per cent allocation to private markets, depending on their own liquidity, he says.

“We want to generate significant alpha over public markets, and we want private markets to be a material part of their portfolio.”

He has no plans to add real estate or private credit. A decade ago, both private credit (distressed credit and solutions credit) and real estate were in the portfolio but dropped away due to an abundance of capital and competition at the time, making it harder to generate alpha over public markets. It also wasn’t the most effective use of endowments’ precious liquidity.

In private equity, investments target lower to mid-market opportunities where not only is there less competition; it is also possible to take a founder-led business, make it more professional and grow the EBITDA. It requires working with the right partners with sourcing acumen and the ability to win over founders; understanding when to invest – and when to stand back.

“Many years ago, we realised that in the lower mid-market PE, we have multiple ways to win beyond relying on access to cheap debt and favourable market conditions. In the small end of the PE market, even if the macro doesn’t cooperate, we can generate strong returns.”

Independent sponsors in private equity

In addition to actively investing with around 20 private equity GPs, TIFF has also partnered with independent sponsors for over a decade in its direct private equity sleeve in a win-win allocation that not only returns around 30 per cent IRR but also, over time, may convert independent sponsors into successful fund relationships.

The strategy, begun about ten years ago, was born out of the desire to generate returns deal-by-deal but also find and identify the next great PE firms early on. It has enabled TIFF to develop close partnerships, see “the good and the bad,” and go on to access their first fund as anchor investor with an information advantage not available to others.

“Approaching ten of the independent sponsors we’ve worked with have gone on to raise funds over the years. We’ve backed most of them. We typically end up partnering from independent sponsor right through to fund one, two, three and hopefully beyond.”

Finding independent sponsors who source, structure, and execute deals without managing a committed PE fund involves the typical due diligence of a first partnership with an emerging manager in an underwriting process that includes due diligence on the underlying company.

TIFF doesn’t invest directly in venture capital but actively backs around 20 “exceptional managers” who are able to find, source, identify and convince founders to let them invest alongside.

Celebrated partnerships include First Round Capital, through which TIFF has invested early on in a mix of exceptional companies that notably include Uber in 2010, supporting the business through its 2019 IPO that valued it at over $75 billion.

“Our focus is on finding managers that find founders that are solving a problem in the world and to become their earliest backer. Then you can generate outsized returns,” he says.

Accessing managers is a finely tuned, proactive sourcing process. It includes mining TIFF’s own extensive network, particularly its stella, past and present, advisory board for an endless source of introductions and warm recommendations, which means TIFF is often the first call for many venture firms. A combination of part process and part network means TIFF is present at scale in funds it is now impossible for new investors to access, says Parry.

“In venture, we have long-term, fantastic relationships with managers who we’ve backed from their first fund. Both existing and new managers also value TIFF’s mission to serve the investment needs of non-profits,” he says.