Investment Returns and Distribution Policies of Non-Profit Endowment Funds / Sandeep Dahiya, David Yermack.

Format:

Book

Author/Creator:

Dahiya, Sandeep.

Contributor:

National Bureau of Economic Research.

Yermack, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25323.

NBER working paper series no. w25323

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We present the first estimates of investment returns and distribution rates for U.S. non-profit endowments, based on a comprehensive sample of 35,755 organizations for 2009-2018, a period that saw a sharp drop followed by a lengthy appreciation in public equity values. Non-profit endowments badly underperform market benchmarks during our sample period. Holding a zero investment portfolio (long endowment and short 60-40 mix of U.S. equity and Treasury bond indexes) generates a mean -4.20% annual return. Regression estimates in four-factor models including U.S. stocks and bonds, global stocks, and hedge funds, find statistically significant alphas of -0.39% per year. Smaller endowments have less negative alphas than larger endowments, but all size classes significantly underperform. Distribution ratios are conservative, well below the funds' long-run returns. Donors increase contributions when endowment returns are strong, with an elasticity of about 0.20 between net-of-market investment returns and new donations.

Notes:

Print version record

December 2018.