Secondaries lifted 2025 foundation returns, but it's mostly paper gains

Investments in secondaries drove returns at private foundations in 2025, according to new research by Commonfund . This may, however, be something of a mirage.

Investments in the PE secondary market, whether by acquiring secondhand fund stakes or backing managers that do, generated an average gain of 20.6% at the private foundations observed in the report, published last week by the $31.5 billion investment manager and the Council on Foundations, a nonprofit membership association. This was the highest return of any alternative asset class among the 17 respondents that reported secondaries returns.

This doesn't mean that mature PE funds are once again exiting companies and throwing off cash.

Mark Hoeing, president and CEO of CF Private Equity, Commonfund's private equity arm, attributed the outperformance to secondary-market buyers' practice of purchasing assets at a discount and marking them to par after purchase.

This practice has been employed against a backdrop of record secondary transaction volumes, multiplying the impact of the mark-ups in performance. Total secondary deal volume surpassed $120 billion in the first six months of 2026, a 20% jump over H1 2025, the previous record.

"If you have the trajectory move up in your secondary portfolios, you'll get a bump in the year that's happening. You'll see strong one-year IRR performance," Hoeing said.

The study includes reporting by 285 private and community foundations representing $126.9 billion in combined assets.

The strong performance of secondaries—at least on paper—is welcome news for this subset of LPs, which have struggled with depressed trailing three-year returns since 2022, when a sharp downturn dragged down multi-year averages across their portfolios. Private and community foundations posted their lowest one-year average return on record in 2022, but in both 2023 and 2024 they saw double-digit annual gains. The trailing three-year figure lagged, still weighed down by 2022.

Things appeared to have turned around in 2025, with private foundations reporting an average three-year return of 12.4%, up meaningfully from 3.1% in 2024. Community foundations also saw drastic improvement, from 2.8% to 13.2% for the same period.

Recalibrating the asset mix of portfolios also helped with performance last year. Eighty-one percent of private foundations rebalanced their portfolios in 2025, though most did not use secondaries sales to do so, Hoeing said.

Instead, foundations shifted capital away from large buyout funds and used cash from liquid assets or private portfolio distributions to reallocate to growth, early-stage VC and private credit strategies, he added.