Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms
Year: 2019
Type: article
Abstract: How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? I offer the first model characterizing this type of investment decision. I introduce a strategy called “mission hedging,” where—in contrast to traditional socially responsible investing—foundations may benefit from skewing investment toward the objectionable firm in order to align funding availability with need. I characterize the trade-offs driving foundation investment decisions. By leveraging the idiosyncratic firm risk typically diversified away in profit-maximizing portfolios, foundations may find that bad actors provide good opportunities to hedge mission-specific risks. (JEL G11, G14, L31, M14)
Author: Brigitte Roth Tran
Institution: Federal Reserve Board of Governors
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W2970661496