Investment Returns and Distribution Policies of Non-Profit Endowment Funds

65 Pages Posted: 11 Dec 2018 Last revised: 11 Sep 2021

See all articles by Sandeep Dahiya

Sandeep Dahiya

Georgetown University

David Yermack

New York University (NYU) - Stern School of Business

Date Written: December 2018

Abstract

We present the first estimates of investment returns and distribution rates for U.S. non-profit endowments, based on a comprehensive sample of 35,755 organizations for 2009-2018, 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 -4.20% annual return. Regression estimates in four-factor models including U.S. stocks and bonds, global stocks, and hedge funds, find statistically significant alphas of -0.39% 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 0.20 between net-of-market investment returns and new donations.

Suggested Citation

Dahiya, Sandeep and Yermack, David, Investment Returns and Distribution Policies of Non-Profit Endowment Funds (December 2018). NBER Working Paper No. w25323, Available at SSRN: https://ssrn.com/abstract=3298698

Sandeep Dahiya (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

David Yermack

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

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