The Risk, Reward, and Asset Allocation of Nonprofit Endowment Funds

Using tax filings from 374,351 U.S. nonprofit organizations from 2008 to 2020, we provide the first large-scale analysis of endowment prevalence, function, asset allocation, and returns. Endowment use varies systematically across sectors and revenue models. Organizations with endowments scale mission-related spending more effectively and hedge revenue risk through asset allocation. Yet most endowments underperform passive benchmarks, with the weakest performance concentrated among smaller, self-managed funds. Advisory fees are positively correlated with gross returns but negatively with net returns, suggesting overpayment for investment services. Stronger governance, lower discretionary spending, and the use of outsourced CIOs are associated with better performance