Investment Returns and Distribution Policies of Non-Profit Endowment Funds

Investment Returns and Distribution Policies of Non-Profit Endowment Funds

Sandeep Dahiya, David Yermack

Series number :

Serial Number: 
582/2018

Date posted :

November 27 2018

Last revised :

April 28 2021
SSRN Share

Keywords

  • non-profit endowments • 
  • institutional investors

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.

 

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Authors

Real name:
Sandeep Dahiya