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What Do University Endowment Managers Worry About? An Analysis of Alternative Asset Investments and Background Income

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  • Harvey S. Rosen

    (Department of Economics Princeton University Princeton, NJ 08544)

  • Alexander J. W. Sappington

    (Sappington & Associates Gainesville, FL 32608)

Abstract

This paper examines whether university endowment managers think only in terms of the assets they manage or also take into account background income, that is, the other flows of income to the university. Specifically, we test whether the level and variability of a university's background income (e.g., from tuition and government grants) affect its endowment's allocations to so-called alternative assets, such as hedge funds, private equity, and venture capital. We find that both the probability of investing in alternative assets and the proportion of the portfolio invested in such assets increase with expected background income and decrease with its variability.

Suggested Citation

  • Harvey S. Rosen & Alexander J. W. Sappington, 2016. "What Do University Endowment Managers Worry About? An Analysis of Alternative Asset Investments and Background Income," Education Finance and Policy, MIT Press, vol. 11(4), pages 404-425, Fall.
  • Handle: RePEc:tpr:edfpol:v:11:y:2016:i:4:p:404-425
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    References listed on IDEAS

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    Cited by:

    1. Drew M. Anderson, 2019. "What Constitutes Prudent Spending from Private College Endowments? Evidence from Underwater Funds," Education Finance and Policy, MIT Press, vol. 14(1), pages 88-114, Winter.

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