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Alternative Investments. Black Keith H.
Читать онлайн.Название Alternative Investments
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isbn 9781119016380
Автор произведения Black Keith H.
Жанр Зарубежная образовательная литература
Издательство Автор
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Van Vliet, P., and D. Blitz. 2009. “Dynamic Strategic Asset Allocation: Risk and Return Across Economic Regimes.” Robeco Asset Management Working Paper.
Zhang, C., and H. Kazemi. 2015. “Hedge Funds Returns and Market Anomalies.” CISDM Working Paper, University of Massachusetts.
Zhang, L. 2005. “The Value Premium.” Journal of Finance 60 (1): 67–103.
CHAPTER 3
The Endowment Model
Investors allocating assets to alternative investments need a framework on which to build their portfolios. What should the size of the allocation to traditional investments be, relative to alternative investments? Within alternative investments, how should the portfolio be diversified across asset classes, styles, and managers? For many, the answers come from a study of the investment practices of the managers of the largest endowment and foundation portfolios.
3.1 Defining Endowments and Foundations
Endowments refer to the permanent pools of capital owned by institutions such as colleges, universities, hospitals, museums, and religious organizations. When well funded and well managed, an endowment can provide a permanent annual income to the organization, while maintaining the real value of its assets in perpetuity. The idea of perpetuity is not a theoretical concept. The two largest U.S. university endowments are owned by Harvard University and Yale University, which were founded in 1636 and 1701, respectively. Universities that are more than 310 years old with assets of over $23 billion each can operate under the assumption that their assets will exist in perpetuity. The assets held by an endowment can generate income that offsets the impact of economic fluctuations over the course of the business cycle.
Most endowments are run by a single organization but may be funded by thousands of donors. In the United States, each organization is typically organized as a tax-free charity, in which individuals receive a tax deduction for making charitable donations. The investment income of the organization may also be tax exempt. Donations to the organization can be made in many forms, including cash, real estate, or equity securities, as well as art and other collectibles. Noncash donations are frequently sold and the proceeds reinvested according to the strategic asset allocation of the endowment manager. The endowment fund of a single university may be composed of thousands of smaller gifts, many of which are segregated to fund specific scholarships, professorships, or the maintenance of specific buildings or academic programs. These restricted gifts may require that the university maintain the corpus, the nominal value of the initial gift, while spending the income generated by the gift to benefit the stated purpose.
Exhibit 3.1 shows the significant asset size of the U.S. and Canadian college and university endowment community. As of June 2014, the National Association of College and University Business Officers (NACUBO) reported that endowment assets totaled $516 billion, with $140 billion held by the six universities with the largest endowment funds. The total value of endowments likely exceeded $516 billion as of June 2014, as this figure includes only those assets of the 832 endowments that responded to the survey. Should nonsurveyed colleges and universities also have endowments, then the total assets would exceed the amount reported in Exhibit 3.1.
EXHIBIT 3.1 Assets of the Largest North American University Endowments
Source: 2015 NACUBO-Commonfund Study of Endowments.
The wealth of college and university endowments is highly concentrated at a small number of institutions. As of June 2014, 91 of the 832 colleges and universities reporting to the NACUBO survey had assets exceeding $1 billion. These largest endowments controlled 74 % of the total endowment and foundation assets under management (AUM) held by U.S. and Canadian colleges and universities.
Foundations are similar to endowments but tend to differ in a number of ways: (1) foundations are grant-making institutions, whereas endowments tend to be funds established by educational, health-care, or religious organizations; (2) foundations tend to be finite lived, whereas endowments tend to be perpetual; (3) foundations are more subject to minimum spending requirements; and (4) foundations are less likely to be funded from ongoing donations.
Foundations located in the United States have even greater assets than college and university endowments. At the end of 2012, the Foundation Center estimated that U.S. foundations controlled more than $715 billion in assets, the vast majority of which were held by independent, individual, and family foundations (see Exhibit 3.2). The Foundation Center estimates that 22 % of the grants made by the top 1,000 foundations in 2012 were awarded to educational charities, 38 % to health and human services, 10 % to arts and cultural programs, 7 % to the environment and animals, and the remaining 23 % to charities with various other purposes.
There are a number of different structures for foundations (see Exhibit 3.3). Some are similar to endowments, whereas others differ notably. Operating foundations have the greatest similarity to endowments, as the income generated by an endowment is used to fund the operations of the charitable organization. Some of the largest operating foundations are sponsored by global pharmaceutical companies with the goal of distributing medicine to patients who cannot afford to purchase these lifesaving remedies.
EXHIBIT 3.2 Assets of the Largest U.S. Foundations
Source: The Foundation Center, 2014.
Community foundations are based in a specific geographical area, concentrating the charitable giving of the region's residents. The gifts and investment returns received by the community foundation are distributed in the form of grants to other charities in the community. In contrast to endowments and operating foundations, community foundations do not operate their own programs. A single community foundation may partially fund the operations of dozens of charities within a specific region, typically making grants to organizations with a variety of purposes.
Corporate foundations are sponsored by corporations, with gifts provided by the corporation and its employees. Like community foundations, corporate foundations frequently concentrate their financial donations to charities located in the communities where the firm has the greatest number of employees or customers.
Unlike endowments, many foundations find it difficult to survive in perpetuity. In fact, some foundations are designed to last for only a designated period of time. The ability of endowments, operating foundations, and community foundations to solicit gifts greatly increases the probability of the organization's assets lasting into perpetuity.
Most independent foundations are funded by an individual or a family. These foundations may be founded by a single gift, often by the senior executive of a large corporation who donates wealth in the form of stock. Donating stock to any charity may provide significant tax benefits. The charitable donation may be tax deductible at the current market value, while capital gains on the appreciated stock position are eliminated for tax purposes by the donation. When tax law allows for this structure, the donors reduce their tax burden in two ways: (1) from the forgiven capital gains taxes on the stock's appreciation, and (2) from the tax deduction on the current market value of the charitable donation.
EXHIBIT 3.3 Assets, Gifts, and Giving at U.S. Foundations ($ billion)
Source: The Foundation Center, 2014.
Independent