In Newsclips, we scan the headlines and dive into timely market commentary to help you become a sharper, more informed steward of wealth. This month, we explore the ripple effects of tightening liquidity across capital markets, the surprising shift in how Ivy League endowments are approaching portfolio construction, and how disciplined investors can turn market drawdowns into long-term tax advantages.
WSJ: The Economy Is in a Pickle
This editorial highlights growing systemic stress as credit tightens, interest rates remain elevated, and liquidity across capital markets dries up. With few viable exit paths, companies—especially in private markets—are facing stagnation, valuation compression, and shrinking options for capital. Private equity’s struggles are a symptom, not the cause, of a larger squeeze affecting the broader financial ecosystem.
Flatrock’s Take: Some of the risks outlined remind us of an old adage on the trading desk, “Liquidity is like air. You can’t see it. You can’t smell it or taste it. But when it’ gone, you know it.” With exits stalled, financing harder to come by, and liquidity under strain, investors need to recognize the knock-on effects throughout portfolios. Private equity and private credit exposure can become unintentionally intertwined, leading to layered risks in opaque corners of the market.
In this environment, investors need to carefully examine the amount of illiquidity they take. Our clients’ Protective Reserve allocations are designed to provide liquidity for acute shocks. But, we also tend to emphasize liquid investments in our Growth Assets portfolios, rarely incurring more than 10-15% illiquidity. In a world where liquidity can vanish without warning, staying nimble isn’t just prudent—it’s essential for portfolio resilience.
MCSI: Drawdowns Can Have a Silver Lining for Your Taxes
MSCI simulated a tax-aware portfolio that employed systematic tax-loss harvesting during periods of market drawdown. Their backtesting showed that this strategy could add approximately 40 basis points (0.40%) of annualized after-tax return, primarily due to the tax deferral benefits and compounding of reinvested savings.
Flatrock’s Take: MSCI’s study adds to the rich literature on “tax alpha”, which we admit may not be the most engaging portfolio topic. But, it is eminently more reliable – in our opinion – than calling market bottoms or picking the next NVDA. Over the long-term, we expect equity funds to appreciate but with interim volatility. The price swings are even greater when we look at individual stocks.
2025 is a great case study of using market volatility to harvest losses. As an illustrative example, a representative Global Custom Index portfolio, funded on December 18 and held through June 17, 2025, generated a net-of-fees return of approximately 6.3%. During April’s ‘Tariff Tantrum’ market volatility, several equity holdings declined below cost basis, enabling tax loss harvesting opportunities. For certain taxable California investors, this resulted in realized capital losses exceeding 10% of portfolio value, potentially generating a ‘tax alpha’ of up to 3.7%, assuming top combined state and federal tax rates.[i]
No stock picking, no sector calls—just a systematic framework for harvesting tax losses where available.
WSJ: Universities Map Out New Investment Strategies to Deal With Tax Hike on Endowments
Facing higher taxes and governance pressures, large university endowments are shifting away from opaque, high-fee strategies in favor of more transparent, liquid, and cost-efficient investments. Some Ivy League schools are dialing back alternatives exposure in response to internal and external scrutiny.
Flatrock’s Take: The tables have turned! For years, advisors have tried to mimic the endowment model—complex, illiquid, alternative-heavy strategies promoted by large asset managers. From a cynical perspective, these products create a veneer of sophistication and exclusivity, allowing advisors to position themselves as value-added gatekeepers playing into our psychological bias that equates complexity with effectiveness. We previously covered here and here that this is at odds with the data. An even more cynical take is that the embedded complexity can obscure performance while their illiquidity may reduce the risk of advisor switching.
Now, irony abounds: Ivy League endowments themselves may be moving toward lower-cost, liquid, tax-efficient structures. Will “Yale Model” advisors follow suit? We’re skeptical.
If any of these topics spark a conversation, we’d be delighted to chat. Markets fluctuate. Priorities change. We’re here to help.
Disclosures
Flatrock Wealth Partners LLC (“Flatrock”) is a registered investment advisor.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Flatrock does not offer tax advice. You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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[i] Tax loss harvesting opportunities were pursued within independently managed equity strategies; however, implementation varied by manager and mandate. Not all clients are invested in such strategies or managers. Actual investment performance and tax outcomes will vary depending on individual portfolio composition, manager decisions, and client-specific circumstances. This example is provided for illustrative purposes only and is not indicative of future performance.