How University Endowments Respond to Financial Market Shocks: Evidence and Implications

Brown, Jeffrey R.; Dimmock, Stephen G.; Kang, Jun-Koo; Weisbenner, Scott J.

doi:10.2139/ssrn.2128967

Cited by 45 publications

(65 citation statements)

References 13 publications

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“…Finally, the Discretionary Portfolio generated a Jensen's alpha of 7.7% with a very high tracking error relative to the UK equity index of 13.9%. The time series tracking error for contemporary US university endowment funds averaged 3.4% over the period 2002-07, according to Brown, Dimmock, Kang, and Weisbenner (2014). Indeed, the -11 -tracking error of the 95 th percentile fund in the latter study still only reached 6.3%…”

Section: Chambers Dimson and Foo (Forthcoming) Document In Consideramentioning

confidence: 69%

Keynes, King's and Endowment Asset Management

Chambers¹,

Dimson²,

Foo³

2014

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stock-picking approach in the early 1930s allowed him to maintain his commitment to equities when the market fell sharply once more in 1937-1938. In so doing, he provides an excellent example of the natural advantages that accrue to such long-horizon investors as university endowments in being able to behave in a contrarian manner during economic and financial market downturns. King's, one of the thirty-one Cambridge Colleges, was founded in 1441 by King Henry VI and lavishly endowed with agricultural real estate that stretched the length and breadth of England. Famous Kingsmen other than John Maynard Keynes include Sir Francis Walsingham, secretary of state and organizer of Queen Elizabeth I's spy service; Sir Robert Walpole, prime minister; Alan Turing, the father of modern computing; and the novelists E. M. Forster and Salman Rushdie. For centuries, their agricultural estates formed the bulk of the endowment assets of the oldest Colleges and King's was no exception. When Keynes became involved in the management of King's endowment just after World War I, he immediately undertook a substantial reallocation of the portfolio away from real estate into the new asset class, equities. At the time, other institutional investors remained reluctant to follow suit and it was not until after Keynes's death that they began to follow his example. Oxford and Cambridge ("Oxbridge") Colleges have a natural concern for preserving their wealth for future generations (Tobin 1974) and are the ultimate long-horizon investors. Keynes spotted an opportunity for such patient, long-term investors to make a substantial allocation to equities, an innovation at least as radical as the commitment to alternative assets in the late twentieth century by Yale and Harvard. He selected an asset mix for King's consistent with the implications of standard models of consumption and portfolio choice that were to appear many decades later, as described, for example, by Campbell and Viceira (2002). Keynes can justly be regarded as among the first institutional equity investors. This chapter describes why Keynes held strong views about equities and how he changed his investment approach to the benefit of lower transaction costs. We also highlight how King's benefitted from earning an emerging risk premium on UK equities despite the economic turbulence of the 1930s, as well as additional risk premia obtained through tilting the portfolio toward both value and smaller-capitalization stocks. His investment strategy benefitted the endowment considerably, to the extent that upon his death King's had at least drawn level with Trinity, the richest of the Cambridge Colleges. In the post-Keynes era, the endowment has had a more checkered history, illustrating the challenges in trying to emulate Keynes's unconventional investment approach. The chapter begins with a summary of Keynes's various investing roles in section 4.2. Section 4.3 describes our data, followed by a discussion of endowment asset management before Keynes in section 4.4. We then review Keynes'...

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Section: Chambers Dimson and Foo (Forthcoming) Document In Consideramentioning

confidence: 69%

Keynes, King's and Endowment Asset Management

Chambers¹,

Dimson²,

Foo³

2014

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“…Findings of Gawellek and Sunder (2016) negative budget cutting (Brown et al, 2014;Sav, 2016) -it is interesting, that the strongly differing US-American and German system seem to experience similar effects.…”

Section: Economic Crisismentioning

confidence: 94%

Approaching Effects of the Economic Crisis on University Efficiency - A Comparative Study of Germany and Italy

et al. 2016

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“…Viewed through the lens of the H-S criterion, the claim by Desrochers and Wellman (2011, p. 5) that decreases in endowment values experienced by some institutions during the financial crisis that began in 2008 can be dismissed as mere "paper losses" seems odd. H-S principles tell us that such losses reduce an institution's command over resources, and indeed, Brown, Dimmock, Kang and Weisbenner (2010) and others have documented that they have substantial impacts on universities' behavior. In the household context, Armour, Burkhauser and Larrimore (2013) have shown that failure to follow H-S logic and include unrealized capital gains in income leads to highly misleading estimates of the extent to which inequality across households has increased over time in the United States.…”

Section: Measuring Incomementioning

confidence: 99%

“…How unequal are the resources available to universities, and has the level 1 Lerner, Schoar and Wang (2008) investigate how rates of return on endowment funds vary among universities and find that institutions with larger endowments and more selective admissions policies have higher rates of return. Additional research relating to university endowments includes Brown, Dimmock, Kang and Weisbenner (2010), Barber and Wang (2013), Brown and Tiu (2014), Dimmock (2012), and Goetzmann and Oster (2012).…”

mentioning

confidence: 99%

Are Universities Becoming More Unequal?

Lau¹,

Rosen²

2016

The Review of Higher Education

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Observers have expressed concern about growing inequality in resources across universities. But are universities really becoming more unequal? We argue that the typical approach of examining endowment growth alone is not sensible. In line with the literature on household inequality, we focus instead on a comprehensive income measure. We find that although there is considerable inequality among institutions, concerns about the inexorable growth of inequality are overblown. Whether one looks at income, endowment wealth, or expenditure, inequality has been high but stable, exhibiting only negligible increases in recent years. Furthermore, there has been little mobility within the higher education sector.

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How University Endowments Respond to Financial Market Shocks: Evidence and Implications

Cited by 45 publications

References 13 publications

Keynes, King's and Endowment Asset Management

Keynes, King's and Endowment Asset Management

Approaching Effects of the Economic Crisis on University Efficiency - A Comparative Study of Germany and Italy

Are Universities Becoming More Unequal?

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