Working Paper: NBER ID: w25323
Authors: Sandeep Dahiya; David Yermack
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.
Keywords: No keywords provided
JEL Codes: G11; G35; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| distribution policies are conservative (G52) | long-term growth without sufficient payout (G35) |
| endowment management practices (G23) | investment performance (G11) |
| endowment size (D29) | performance (D29) |
| larger endowments (I23) | more significant underperformance (D29) |
| investment returns of nonprofit endowments (I26) | negative alphas (C46) |