Consequences of Unfunded Capital Commitments: Evidence from University Endowments

Presented at the 2023 Mitsui Finance Symposium

41 Pages Posted: 19 Sep 2024

See all articles by Mark Jansen

Mark Jansen

University of Utah - Department of Finance

Ludovic Phalippou

University of Oxford - Said Business School

Reiner Braun

Technische Universität München (TUM) - TUM School of Management; Center for Entrepreneurial and Financial Studies

Date Written: February 24, 2023

Abstract

Asset owners globally have a $4 trillion liability due to their commitment to private capital funds. Using hand-collected data on US university endowments, we show that these unfunded commitments are negatively correlated with cash holdings and positively correlated with lines of credit. Hedging these unfunded commitments with cash and credit lines has real consequences. Hedged endowments achieved higher returns than unhedged ones during the Great Financial Crisis and subsequently spent more on faculty salaries and scholarships, leading to higher university rankings. However, in normal times, hedged endowments experienced lower returns. These findings emphasize the role of endowment liquidity management on university operations.

Keywords: Capital commitment, private equity, commitment risk, liquidity premium

JEL Classification: G11, G12, G23, G32, G40

Suggested Citation

Jansen, Mark and Phalippou, Ludovic and Braun, Reiner, Consequences of Unfunded Capital Commitments: Evidence from University Endowments (February 24, 2023). Presented at the 2023 Mitsui Finance Symposium, Available at SSRN: https://ssrn.com/abstract=4937390 or http://dx.doi.org/10.2139/ssrn.4937390

Mark Jansen (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
1655 Campus Center Dr.
Salt Lake City, UT 84112
United States
801-213-6910 (Phone)

HOME PAGE: http://eccles.utah.edu/team/mark-jansen/

Ludovic Phalippou

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Reiner Braun

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, Deutschland 80333
Germany
+498928925181 (Phone)
+498928925188 (Fax)

HOME PAGE: http://www.ef.wi.tum.de/

Center for Entrepreneurial and Financial Studies ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

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