How Does Human Capital Affect Investing? Evidence from University Endowments

60 Pages Posted: 15 Jun 2018 Last revised: 29 Apr 2022

See all articles by Matteo Binfarè

Matteo Binfarè

University of Missouri at Columbia - Department of Finance

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area

Robert S. Harris

University of Virginia - Darden School of Business

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School; Frank Hawkins Kenan Institute of Private Enterprise

Date Written: May 17, 2019

Abstract

We examine the links between human capital and endowment investing. Harnessing detailed information on university endowments, we find that higher asset allocations to alternative assets accompany higher levels of human capital in the endowment’s investment process. Moreover, high levels of human capital are linked to larger returns, even on a risk-adjusted basis. The improved investment outcomes arise because endowments i) capture higher returns that can accompany alternative assets, ii) select or have access to high performing managers, and iii) minimize fees by accessing funds directly rather than through funds of funds. Our measures of human capital include expertise in alternatives on governing bodies, the presence of a chief investment officer and the size of the investment staff. Finally, we conduct a novel survey of endowments and confirm that human capital is central in facilitating alternative investments.

Keywords: Endowments, Human Capital, Private Equity, Returns, Venture Capital

JEL Classification: G11, G23

Suggested Citation

Binfarè, Matteo and Brown, Gregory W. and Harris, Robert S. and Lundblad, Christian T., How Does Human Capital Affect Investing? Evidence from University Endowments (May 17, 2019). Review of Finance (https://doi.org/10.1093/rof/rfac017), Darden Business School Working Paper No. 3187280, Kenan Institute of Private Enterprise Research Paper No. 18-11, Available at SSRN: https://ssrn.com/abstract=3187280 or http://dx.doi.org/10.2139/ssrn.3187280

Matteo Binfarè (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States

HOME PAGE: http://www.matteobinfare.com

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Robert S. Harris

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4823 (Phone)
434-924-4859 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-8441 (Phone)

Frank Hawkins Kenan Institute of Private Enterprise ( email )

Campus Box 3440, The Kenan Center
Chapel Hill, NC 27599-344
United States

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