Private equity and venture capital are unlikely to be the primary drivers of institutional alpha over the next 35-40 years as they have been in the past.
The high valuation multiples paid in private equity during 2020-2021, often exceeding 20x EBITDA, were a sign of market froth and are likely to lead to poor future returns.
The power dynamic in venture capital has fundamentally inverted, with top entrepreneurs now holding leverage over VCs, which compresses investor returns.
The recent expansion of private equity access to retail investors will likely result in disappointment for many, due to high fee loads and mediocre net performance.
The historical success of the 'Yale Model' was contingent on a disciplined, contrarian investment philosophy and an early-mover advantage that is difficult to replicate in today's more efficient market.
▶The 'Yale Model': A Product of Time and TemperamentApr 2026
Sullivan details the Yale Endowment's foundational strategy, emphasizing its early-mover advantage in private markets, a focus on operationally-focused managers, and disciplined, contrarian rebalancing under David Swenson. The model's success was also built on unique relationships, such as the one with Hillhouse Capital, which originated from a student internship.
The analysis suggests that the 'secret formula' of the Yale Model was highly dependent on a specific market context of information asymmetry and first-mover access, making its historical success incredibly difficult for other institutions to replicate today.
▶The Evolution and Froth of Private MarketsApr 2026
Sullivan chronicles the maturation of private equity and venture capital, highlighting key inflection points that often signaled market excess. He points to the shift from EBIT to EBITDA multiples in the 1990s as a way to justify higher prices and compares the dot-com era's billion-dollar funds to the 20x+ EBITDA multiples paid for companies in 2020-2021.
For Sullivan, shifts in industry norms and valuation metrics are critical leading indicators of market tops, suggesting that investors should be wary when the methods of financial justification become more creative.
▶Shifting Power Dynamics in Venture CapitalApr 2026
A key observation from Sullivan is the fundamental reversal of power in the venture capital ecosystem. He contrasts the past, where top firms could invest small amounts for large stakes (e.g., $3M for 30%), with the present, where those same firms must compete to invest large sums for minimal equity (e.g., $50M for 3%).
This power shift directly challenges the traditional venture capital return model, implying that future gains will be harder to come by for LPs as more value is captured by founders and early employees.
▶Skepticism on Future Private Equity ReturnsApr 2026
Sullivan expresses a strong conviction that the golden era for private equity and venture capital is over. He predicts these asset classes will struggle to be the primary source of alpha for institutions over the coming decades and warns that newly-admitted retail investors will likely be disappointed by net returns after fees.
Sullivan's forward-looking commentary serves as a cautionary note for asset allocators, suggesting that the strategies that drove outperformance for the last 40 years will not suffice for the next 40, necessitating a search for new alpha sources.