Published Papers

Paying Managers of Complex Portfolios: Evidence on Compensation and Performance from Endowments

with Robert S. Harris

Journal of Financial and Quantitative Analysis (forthcoming)

Presentations: 33rd Australasian Finance and Banking Conference (AFBC, 2020) ; Financial Management Association (FMA, 2020); Southern Finance Association (SFA, 2020);

Media Mentions: Financial Times - FundFire, Institutional Investor, With Intelligence by Leanna Orr, St. Louis Business Journal

Abstract: We examine compensation for endowment Chief Investment Officers (CIOs) overseeing portfolios with significant allocations to alternatives. We find widespread use of bonuses and that large endowments with high alternative allocations hire CIOs with stronger backgrounds, pay them more, and have higher pay-for-performance sensitivity. We find weak evidence of a relationship between compensation and future performance. Our results align with contract theory predictions, but differ from empirical findings on pension funds. Endowments pay CIOs more, rely more on bonuses, attract more experienced professionals, and have lower turnover than pensions. This suggests more effective talent management compared to politically influenced public pensions.

Working Papers

Investing With Purpose: Evidence From Private Foundations

with Kyle E. Zimmerschied

Presentations: Financial Management Association (FMA, 2022), American Finance Association (AFA 2021, Poster Session); Southern Finance Association (SFA, 2021); Easter Finance Association (EFA, 2022); Ryerson University; University of Florida

Abstract: We study the asset allocation, spending behavior, fees, and investment performance of U.S. private foundations. We find that large foundations generate positive risk-adjusted returns of about one percent per year. Larger and more sophisticated foundations perform better and invest more aggressively. Foundations with concentrated stock holdings have higher returns, but also take on more risk. Because of the constraints imposed by the five percent minimum spending rule and accommodating monetary policy, private foundations increase their risk-taking and reach for yield. Due to these constraints, a conservative asset allocation will decrease real wealth over time resulting in less charitable giving. 

A New Lease on Firm Behavior

with Robert Connolly, Fotis Grigoris, and Crocker Liu

Presentations: Financial Management Association (FMA, 2021); Eastern Finance Association (EFA, 2021) ; Financial Markets and Corporate Governance  (2020); Midwest Finance Association  (MFA, 2021) ; University of Miami (2021)University of Missouri (2020); 15th Annual Conference on Asia-Pacific Financial Markets (CAFM, 2020); 33rd Australasian Finance and Banking Conference (AFBC, 2020) ; 

Runner Up Award, 2021 Financial Markets and Corporate Governance Conference 

Abstract: When firms have discretion in valuing their balance sheet debt, how do they make this valuation decision given its impact on firm value? Firms make extensive use of operating leases, but unlike other types of debt, their balance sheet value is set by the firm. Using novel information on operating leases, we examine firm behavior in valuing these leases. We find that 20% of firms report higher-than-expected rates, reflecting their cost of unsecured rather than collateralized borrowing. These firms have poor information quality, operate in competitive markets, and understate lease and debt ratios by 15%. 

Benchmarking Private Equity Portfolios: Evidence from Pension Funds

with Nik Augustin and Elyas Fermand

Presentations: 15th Annual Private Equity Research Symposium (PERC); UNC Inaugural Alumni Conference; 2024 VSB Mid-Atlantic Research Conference in Finance (MARC); 2024 Eastern Finance Association (EFA); 2024 Silicon Prairie Finance Conference; 2024 Midwest Finance Association (MFA)

Media Mentions: Institutional Investors, CFA Institute

Abstract: We document significant heterogeneity in benchmarks used for US public pension fund private equity (PE) portfolios. Benchmark type (e.g., public vs. private, domestic vs. global), spread, and complexity vary predictably with PE allocations and specialty consultant use. General consultant turnover predicts PE benchmark changes, and leads to broader operational shifts; after a general consultant change, there is a 7% higher probability of PE consultant turnover. Public pension funds beat their PE benchmarks about half the time, but over the last 20 years, benchmarks consistently became easier to beat. We attribute benchmark changes to consultants' labor market incentives to expand their client portfolio, rather than changing private equity return expectations.

The Real Effects of Operational Risk: Evidence from Data Breaches 

Presentations: EFA (2020, cancelled); SWFA (2020, cancelled); NFA (2019)

Abstract: Operational risk poses unique challenges to corporations around the world. However, little is known about the consequences of risk management vulnerabilities on financing costs and firm outcomes. In this paper, I document substantial and persistent effects on financing costs and debt contracting caused by operational risk management vulnerabilities following data breaches of public firms. Exploiting data breach events between 2005 and 2015, I find that lenders charge breached firms 15 to 20 percent larger spreads, and tighten covenant intensity, consistent with a shift in control rights over cash flows. The effect is larger for breaches of financial information or malicious cyber-attacks, and for firms with lower attention to risk management. Moreover, financial and operating leverage increases, profitability drops, and firms face a higher probability of default. Lastly, ex-ante mispricing by banks does not explain these findings.

Work in Progress

Book Chapters

University Endowments

The Palgrave Encyclopedia of Private Equity. In: Cumming, D., Hammer, B. (eds) Palgrave Macmillan