How Do Financial Expertise and Networks Affect Investing? Evidence from the Governance of University Endowments
48 Pages Posted: 15 Jun 2018 Last revised: 20 May 2019
Date Written: May 17, 2019
We examine the link between endowment investment performance and the expertise of university board members. Harnessing detailed information on 11,019 members for 579 universities, we find that expertise in alternatives 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 using direct funds rather than funds of funds. While identification of a causal effect of expertise and networks on allocations and performances is challenging, we conduct a novel survey of 132 endowment managers and boards (collectively over 60% of endowment assets), and confirm that board 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