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Currency | Secondaries
The Wall Street Skinny
April 24, 2025
This Week on The Floor
Are the US and China on a path of mutually assured economic destruction?
Yale Endowment liquidating its Private Equity portfolio: what does it mean?
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Markets Recap / Deal News
Interviewing this week? Here’s some content for your conversation.
USD and RMB in a race to the bottom: is one winning the trade war?
Amidst the rollercoaster of the US’ tariff standoff with China, the Chinese RMB fell to an 18-year low. Some pundits pointed to this as a signal that the US was prevailing in weakening China through its tariff policies, which have yet to be finalized.
And yes, less US investment in China — all else being equal — threatens the strength of its economy, which is still plagued by an ongoing real estate crisis, slowing consumption, and other signs of distress.
But we would caution couching this as a strategic victory for two main reasons.
First, the RMB is not like most other currencies. It does not freely float against all other currencies, richening or cheapening based on nothing more than the vicissitudes of supply and demand.
Rather, the RMB has a long history of being a managed currency. It was directly pegged to the USD from the mid 1990s to the mid 2000s, before it was revalued and set against a basket of currencies whose weights remain unclear. The price action of the RMB relative to the dollar suggests that basket is quite heavily weighted towards the dollar, and the degree to which China’s central bank has — or hasn’t — intervened in its currency over the past twenty years has been the subject of much criticism.
The current policy has been described as — at best — a “managed float”.
And manipulated or not, China’s export-driven economy has benefited from a weaker currency for decades.
Secondly, the U.S. Dollar Index (DXY) ALSO fell to a three-year low earlier this week.
DXY (Source: MarketWatch)
Why? These same tariff policies have shaken confidence in US dollar denominated assets, from equities to bonds to the currency itself. If the goal of tariff policies is ultimately for the US to become a manufacturing powerhouse to rival China — and a net exporter, rather than net importer — then this aligns with those objectives.
But US hasn’t changed its spending habits yet. It hasn’t yet had its companies feel the actual impact of tariffs. And it hasn’t built out the manufacturing capability to compete with China yet.
So while a falling RMB of course hurts China to some degree, it also helps keep China’s export economy humming along with its other trading partners.
By contrast, a falling USD arguably hurts the American economy that is still very much consumption and import-based in greater measure.
Furthermore, the dollar weakening in the absence of easing monetary policy is quite concerning. And we think it’s ultimately one of the key reasons that Trump is currently walking back the scope of his tariff threats against China.
So unlike the videos floating around on social media claiming strategic victory, we think if it’s really a race to the bottom with currencies, China may be better positioned to weather a weak currency than the US.
Yale Endowment and PE Secondaries
When you learn about institutional investors, you’re bound to come across the “David Swensen” or “Yale Endowment” model. David Swensen, the former CIO of Yale’s Endowment, pioneered the asset-class based allocation theory that many capital allocators still use today.
And now, we’re seeing that theory put to the test.
Yale University’s endowment is reportedly seeking to sell $6 billion worth of private equity stakes on the secondary market — approximately 15% of its $41 billion portfolio.
This isn’t just a routine rebalancing. It reflects growing pressure on endowments and pensions to find liquidity in an illiquid world.
The Yale endowment model is specifically known for emphasizing alternative investments like private equity, venture capital, and hedge funds. These asset classes typically offer higher returns but come with the trade-off of limited liquidity.
According to past disclosures, close to 60% of Yale’s portfolio is tied up in illiquid assets.
But there’s a problem. Yale — and other investors with funds tied up in private capital investments — can’t access their money until those investments are exited, either through a sale, an IPO, or another liquidity event.
With exit markets frozen — IPOs delayed, M&A on hold, and capital calls still rolling in —endowments are increasingly constrained.
Enter: the secondaries market.
Selling stakes in private equity funds gives LPs (like Yale) is a way to rebalance portfolios or raise cash without waiting for a fund’s final distributions.
But this growing trend is not without friction. According to recent reporting from Bloomberg, several PE firms are refusing to approve secondary sales unless the seller commits fresh capital to new funds — a move seen by many as an attempt to pressure LPs into ongoing commitments.
The political environment adds another layer of urgency. With the Trump administration’s recent threats to revoke University endowments’ tax-exempt status or cut research funding, universities are increasingly under pressure to maintain larger liquidity buffers. For institutions like Yale, secondaries are not just a portfolio management tool; they are becoming a lifeline.
Understanding how secondaries work is critical. These are negotiated transactions where one investor sells their stake in a private equity fund to another. The buyer typically purchases the stake at a discount to the fund’s net asset value (NAV), depending on the quality of the assets and prevailing market conditions. As more institutions head to the secondaries market, prices may be driven lower, and buyers will have more leverage.
To learn more about how PE secondaries work, check out our full 101 episode here!