Repository logo
 

Essays in Asset Management: Long Horizon Investing


Type

Thesis

Change log

Authors

Kaffe, Charikleia 

Abstract

This dissertation consists of three related essays that contribute to the literature on the behavior of institutional investors and particularly endowments - distinctive because of their long horizon.

The vast majority of endowments delegate the management of their assets to external managers. My first essay provides evidence that decisions taken by endowments about their external investment manager appointments (and terminations) are influenced by the behavior of their peers. This analysis exploits a novel hand-collected dataset on U.S. university endowments and their external investment manager appointments across all the main asset classes for each year over 1978-2008. The study documents that endowments are more likely to appoint the same external manager if their peers do so, are more active in hiring and firing managers when their peers are more active and respond faster to hiring and firing decisions by their peers in respect of a given external manager.

The second essay examines the network connections between endowments and PE managers. Buyout (BO) and Venture Capital (VC) investment networks are examined separately. Using data from 1988 to 2008, I identify the characteristics of the centrally located endowments and managers in the network. While VC networks were more developed than their BO counterparts at the beginning of the sample period, both networks grew denser over time in terms of number of players and connections. The identity of their key institutions (central endowments and managers) stayed the same throughout the period examined. Centrally located managers have better investment returns and win new endowment mandates in subsequent periods. Personal connections between individuals working at endowments and BO firms also play an important role in manager selection by endowments.

The third essay examines the long-term evolution of the investment strategy of U.S. university endowments, using a unique long-term dataset on characteristics and asset allocations from 1900 to 2016 of twelve important endowments. The analysis documents their early adoption of equity investing in the 1930s and their more recent shift into alternative assets from the 1980s. The essay then considers whether endowments famed for their long horizon exploit this advantage to invest countercyclically during periods of market turbulence. I find that endowments do exhibit countercyclical behaviour, decreasing their allocation to risky assets during the run-up to a crisis and increasing it after the onset of a crisis.

Description

Date

2019-11-18

Advisors

Chambers, David
Dimson, Elroy

Keywords

Delegated investment management, Manager selection, Peer effects, Herding, University endowments, Networks, Private Equity, Buyouts, Venture Capital, Financial Markets, Financial Crises, Investments

Qualification

Doctor of Philosophy (PhD)

Awarding Institution

University of Cambridge
Sponsorship
Cambridge Judge Business School (CJBS), Cambridge Trust George and Marie Vergottis Foundation, the Economic and Social Research Council (ESRC), Murray Edwards College Cambridge, the Foundation for Education and European Culture