Investment Beliefs of Endowments
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Columbia Business School - Finance and Economics
William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)
April 1, 2014
Columbia Business School Research Paper No. 13-72
American university and college endowments now hold close to one-third of their portfolios in private equity and hedge funds. We estimate the implied beliefs of endowments about alternative assets' returns relative to equities and bonds. At the end of 2012, the typical endowment believes that its private equity investments will outperform a portfolio of conventional assets by 3.9% per year and that hedge funds will outperform by 0.7% per year. Out-performance beliefs, particularly for private equity, have increased since 2006. There are significant cross-sectional differences in beliefs and trends: private universities are, on average, less risk averse and have more optimistic beliefs and universities with larger endowments, higher spending rates, and those that rely more on the endowment to meet operational budgets tend to believe that alternatives deliver higher alphas. Taking into account the implied equity exposures in alternative asset positions, the effective equity holding of endowments is approximately 60%.
Number of Pages in PDF File: 55
Keywords: Hedge funds, private equity, alternative assets, portfolio choice
JEL Classification: G11, G14, G23working papers series
Date posted: September 19, 2013 ; Last revised: April 3, 2014
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.391 seconds