Do the Rich Know Better? – University Endowment Return Inequality Revisited

Abstract

This paper revisits capital return inequality across university endowments. It combines university-level data on endowment size, investment returns, and portfolio allocations into a unified dataset. Using panel data regression, we replicate Piketty (2014)’s finding of a strong impact of size on investment return. Everything else the same, the biggest endowment has a capital return 8% higher than the smallest endowment. How- ever, after adjusting for risk using Sharpe Ratios, the strong positive correlation turns negligible or even negative. This result suggests that the higher return of bigger endowments can be attributed to risk compensation rather than to an informational premium.

Keywords: Capital Return Inequality, Benchmark Return, Sharpe Ratio, Information Channel, Risk Channel

JEL Classification: I20, D30, G11