Investment Returns and Distribution Policies of Non-Profit Endowment Funds

Sandeep Dahiya and David Yermack

No 25323, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: G11 G35 L31 (search for similar items in EconPapers)
Date: 2018-12
Note: AP CF ED LE
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Citations: View citations in EconPapers (5)

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