Between 1990 and 2019, U.S. endowments increased their allocation to alternative investments from less than 10% to over 50%.

For state pension funds, the figure rose from near zero to 28%.

Fixed-income allocations shrank by a corresponding amount.

The driving factor was interest rates.

As rates underwent a structural decline, government bonds ceased to meet actuarial return targets; consequently, managers sought returns in private equity, private credit, and infrastructure, accepting illiquidity in exchange for a premium.

This shift took shape in a zero-interest-rate environment—an era that has now ended.

With Treasury yields hovering near 4.5%, the question arises once again: is the illiquidity premium still worth it?