Divest, Disregard, or Double Down?

43 Pages Posted: 13 Apr 2017

See all articles by Brigitte Roth Tran

Brigitte Roth Tran

Federal Reserve Bank of San Francisco

Date Written: 2017-04

Abstract

How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? Endowments typically disregard the objectionable nature of or divest from such firms. However, if firm returns increase with activities the endowment combats, doubling down on the investment increases expected utility by aligning funding availability with need. I call this "mission hedging." This paper offers the first model that characterizes the endowment's investment decision on the objectionable firm, defines investment trade-offs, and examines related evidence. Bad actors provide good opportunities to hedge mission-specific risks.

Keywords: Socially responsible investing, Divestment, Endowment, Foundation, Philanthropy, Portfolio, Universities and colleges

JEL Classification: G11, L31, D64, Q5

Suggested Citation

Roth Tran, Brigitte, Divest, Disregard, or Double Down? (2017-04). FEDS Working Paper No. 2017-042, Available at SSRN: https://ssrn.com/abstract=2952257 or http://dx.doi.org/10.17016/FEDS.2017.042

Brigitte Roth Tran (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

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