RT Journal Article
SR Electronic
T1 Donation Risk and Optimal Endowment Portfolio Allocations
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 109
OP 120
DO 10.3905/jpm.2014.41.1.109
VO 41
IS 1
A1 David Blanchett
YR 2014
UL https://pm-research.com/content/41/1/109.abstract
AB An endowment is only one component of the total economic worth of a charitable organization. Other assets, such as real estate, donation revenue, and program service fees generally represent a larger portion of the total wealth of a charity yet are often ignored in the endowment optimization process. This article provides evidence that changes in charitable donations, referred to as donation risk, have statistically significant exposures to different asset classes and risk factors. Through a series of portfolio optimizations it is determined that the optimal allocation for an endowment varies materially for different compositions of total wealth. These findings suggest that narrowly focused portfolio optimization routines that ignore donation risk are insufficient, and that a holistic definition of wealth is necessary to build truly efficient endowment portfolios.TOPICS: Portfolio construction, in portfolio management, statistical methods