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 29,762 organizations drawn from Internal Revenue Service filings for 2009-2017. Non-profit endowments badly underperform market benchmarks, with median annual returns 4.46 percentage points below a 60-40 mix of U.S. equity and Treasury bond indexes, and statistically significant alphas of -1.10% per year. Smaller endowments have less negative alphas than larger endowments, but all size classes significantly underperform. Higher education endowments, the majority of the $0.7 trillion asset class, do significantly worse than funds in other sectors. 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