Denominator effect

Denominator effect — when liquid assets fall, the portfolio’s total (the denominator) shrinks, so the unchanged illiquid slice balloons past its target percentage — mechanically forcing sales of the assets that can only be sold slowly, at discounts. It cracked the model’s own house: Yale put ~$2.5B of PE stakes up for secondary sale in the 2023–25 crunch. The personal version: when your business dips, its share of net worth spikes exactly when you feel poorest — which is what the months-of-burn cash buffer was sized for.

First used in: 5.4 · The endowment model, honestly