Binfarè & Zimmerschied: Doing Good and Doing it with (Investment) Style [private foundation investing]

Matteo Binfarè and Kyle Zimmerschied (both University of Missouri at Columbia) have posted Doing Good and Doing it with (Investment) Style. Here is the abstract:

We study the asset allocation, spending behavior, fees, and investment performance of U.S. private foundations, which have different economic objectives than other institutional investors. We find that large foundations generate positive risk-adjusted returns of about one percent per year and document considerable variation in alphas over time. Larger and more sophisticated foundations perform better and invest more aggressively. Foundations with concentrated stock holdings have higher returns, but also take on more risk. Because of the constraints imposed by the five percent minimum spending rule and accommodating monetary policy, private foundations also increase their risk-taking and reach for yield. Due to these constraints, a conservative asset allocation will decrease real wealth over time resulting in less charitable giving.

Lloyd Mayer