Last week Rob Wallace gave a brief interview on the endowment with the school newspaper.
You can think of the broader market as dictating a material portion of our performance, but not all [of it]. The Merged Pool is fairly diversified by region and asset class, which helps reduce the risk of a problem in any one area of the market. This diversification mitigates market volatility, but doesn’t eliminate it. In addition to reducing volatility, we strive to add value through our specific investment decisions. It requires a disciplined and focused portfolio to drive additional value net of fees and costs. Stanford has achieved this goal over long periods. We realized a few years ago that we had an opportunity to further upgrade our ability to add value, which we have been hard at work to achieve. The early results of this effort have been very strong and have positively contributed to recent performance, though more work remains to be done. Making thoughtful changes to a portfolio as large and illiquid as the Merged Pool takes many years.
What are the goals of an endowment fund?
Stanford has 8,600 separate endowment funds, of which 78 percent are restricted to funding specific programs such as endowed professorships and student scholarships. Income from non-restricted funds supports a wide variety of programs, services and activities at Stanford.
[Provost Persis] Drell said that there are two goals for the endowment fund: to maintain “intergenerational equity,” which means ensuring that gifts to the fund keep the same “purchasing power” in perpetuity, and stability. In order to balance those goals with the reality of fluctuations in the market, the university employs a “smoothing formula” to calculate the endowment payout rate each year with a target payout goal of 5.5 percent.
Post by Marcelino Pantoja