Background risk and nonprofit endowment portfolio volatility

Abstract

AbstractThis article focuses on endowed operating public charities that receive income not only from sources such as donations, grants, and service fees but also from endowment portfolios. Using the Form 990 data between 2009 and 2016, this study examines if the risk from nonendowment income sources, namely background risk, is relevant to endowment portfolio volatility, and if there are any differences across four types of nonprofits where endowment assets are the most concentrated, including museums, universities and colleges, K‐12 schools, and hospitals. The results show that the association between background risk and endowment portfolio volatility is significant and negative for universities; however, it is either nonsignificant or significantly positive for other types of organizations. This study extends research on university endowments to other types of endowed nonprofits. The findings imply different endowment objectives and reflect different asset allocation strategies across types of organizations.