Investment Returns and Distribution Policies of Non-Profit Endowment Funds
72 Pages Posted: 5 Dec 2018 Last revised: 23 Mar 2020
Date Written: March 12, 2020
We present the first estimates of investment returns and distribution rates for U.S. non-profit endowment funds, based on a comprehensive sample of 29,892 organizations drawn from Internal Revenue Service filings for 2009-2017, a period that saw a sharp drop followed by a lengthy appreciation in public equity values. Non-profit endowments badly underperform market benchmarks during our sample period. Holding a zero investment portfolio (long endowment and short 60-40 mix of U.S. equity and Treasury bond indexes) generates a mean negative 3.61 annual return. Regression estimates in four-factor models find statistically significant alphas of -1.12% per year. Smaller endowments have less negative alphas than larger endowments, but all size classes significantly underperform. Distribution ratios are conservative, well below the funds’ long-run returns. Donors increase contributions when endowment returns are strong, with an elasticity of about 0.18 between net-of-market investment returns and new donations.
Keywords: non-profit endowments, institutional investors
JEL Classification: G11, G35, L31
Suggested Citation: Suggested Citation