An Integrated Model of University Endowments

53 Pages Posted: 2 Nov 2013 Last revised: 21 Nov 2017

See all articles by Georg Cejnek

Georg Cejnek

ZZ Vermögensverwaltung GmbH

Richard Franz

Vienna University of Economics and Business

Neal Stoughton

Vienna University of Economics and Business; University of Waterloo

Date Written: November 1, 2017

Abstract

University endowments differ from other institutions in that donation income and spending rates are of equal importance to asset allocation decisions. Our paper develops an optimal endowment framework with endogenous donations income through a feedback dependence based on investment performance. We investigate both substitution and wealth effects due to incomplete markets and nonlinear donation risk. Looking at empirical data on actual US endowment practices, we validate our donations processes and find that policy asset allocation weights and risky asset investment opportunities explain the cross section of US endowment performance. Large endowments take riskier positions and spending rates are determined by relative investment opportunities and its interaction with endowment size.

Keywords: endowments, asset allocation, spending, donations

JEL Classification: G11, G23

Suggested Citation

Cejnek, Georg and Franz, Richard and Stoughton, Neal M., An Integrated Model of University Endowments (November 1, 2017). Available at SSRN: https://ssrn.com/abstract=2348048 or http://dx.doi.org/10.2139/ssrn.2348048

Georg Cejnek

ZZ Vermögensverwaltung GmbH ( email )

Coburgbastei 4, Top5
Vienna, 1010
Austria
+43151818934 (Phone)

Richard Franz

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria
+43 1 51818 545 (Phone)

Neal M. Stoughton (Contact Author)

Vienna University of Economics and Business ( email )

Austria

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

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