How Do Financial Expertise and Networks Affect Investing? Evidence from University Endowments
55 Pages Posted: 15 Jun 2018 Last revised: 12 Nov 2020
Date Written: May 17, 2019
We examine the link between endowment investment performance and human capital. Harnessing detailed information on endowments in higher education, their in-house investment staff, and their trustees, we find that expertise in alternative assets and larger professional networks are associated with higher allocations to alternatives and better investment results. Expertise and networks appear particularly important in private equity and venture capital, which are difficult to analyze and manage. The improved investment performance arises because endowments capture higher returns that can accompany alternative assets, select or have access to high performing managers, and minimize fees by accessing funds directly rather than through funds of funds. Finally, we conduct a novel survey of endowment managers and boards and confirm that expertise is central in facilitating alternative asset investments.
Keywords: Endowments, Hedge Funds, Networks, Private Equity, Venture Capital
JEL Classification: G11, G23
Suggested Citation: Suggested Citation