Investment Returns and Distribution Policies of Non-Profit Endowment Funds

We present the first estimates of investment returns and distribution rates for U.S. non-profit endowment funds, based on a comprehensive sample of 35,262 organizations drawn from Internal Revenue Service filings 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 -4.24% annual return. Regression estimates in four-factor models find statistically significant alphas of -0.83% 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