University endowments with broad portfolio diversification have been correlated with superior performance, but antecedents to investment committees’ asset allocation decisions have received little attention. This research examines the composition and group norms of investment committees that influence their processes of information acquisition, analysis, and decision-making.
Three group norms—shared vision, open-mindedness and a commitment to learning—were found to contribute to greater acquisition of relevant external knowledge, which led to greater exploitation of the expanded knowledge. That process of building absorptive capacity was found to contribute to greater portfolio diversification and higher risk-adjusted returns. Committee expertise in a variety of investment asset classes had a significant effect both on absorptive capacity and on portfolio diversification. A scale was developed to measure the committee’s use of Modern Portfolio Theory principles, another contributor to portfolio diversification.
In sum, the three research papers in this dissertation provide insights regarding how institutional investment management committees overcome typical investor biases that keep them from adopting broader portfolio diversification. Implications for endowment leaders are to obtain diversified investment expertise on the committee and to foster a learning-oriented climate where knowledge and capabilities are expanded and effective decisions are made.