Equity Investment Analysis, the case for a private university endowment

Abstract

The purpose of this study is to investigate the assertion that university and college endowments should maintain one hundred percent equity holdings in their portfolios. An equity portfolio is compared to a traditional 60/40 stock-bond portfolio in testing this assertion. The focus is on the Kenyan stock market and the Nairobi Securities Exchange (NSE) All Share Index (NASI) is taken as a representative diversified equity market portfolio. A fifteen-year Kenyan infrastructure government bond is taken to represent the bond portfolio. The study considers whether the returns generated would sustain an endowment both in the short term (less than ten years) and in the long term (more than ten years). The study finds that equity returns are indeed sufficient to fund the endowment portfolio both in the long-run and short-run, but a traditional 60/40 portfolio is seen to have a higher risk-adjusted return.