PT  - JOURNAL ARTICLE
AU  - David Blanchett
TI  - Donation Risk and Optimal Endowment Portfolio Allocations
AID  - 10.3905/jpm.2014.41.1.109
DP  - 2014 Oct 31
TA  - The Journal of Portfolio Management
PG  - 109--120
VI  - 41
IP  - 1
4099  - https://pm-research.com/content/41/1/109.short
4100  - https://pm-research.com/content/41/1/109.full
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