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Princeton University Campus 1895

What Do University Endowment Managers Worry About?
An Analysis of Alternative Asset Investments and Background Income

Harvey S. Rosen, Princeton University
Alexander J.W. Sappington, Sappington & Associates
Griswold Center for Economic Policy Studies
Working Paper No. 244, June 2015

Abstract. This paper examines whether university endowment managers think only in terms of the assets they manage, or also take into account background income, the other flows of income to the university. Specifically, we test whether the level and variability of a university’s background income (e.g., from tuition and government grants) affect its endowment’s allocations to so-called alternative assets such as hedge funds, private equity, and venture capital. We find that both the probability of investing in alternative assets and the proportion of the portfolio invested in such assets increase with expected background income and decrease with its variability

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