The Stanford Management Company (SMC) announced last Thursday that its merged pool achieved a 1 percent return on investment during the 12-month period that ended June 30. Challenges in international equity markets and economic uncertainty contributed to a number that is significantly lower than last year’s 22.4 percent return on investment. Endowment levels have still not fully recovered from the 2008-2009 economic crisis.
“It was a challenging year due to the state of the economy,” said John Powers, CEO of the SMC, which is in charge of managing Stanford’s financial assets.
Powers said that one year is too short a time frame to fairly evaluate a portfolio like the merged pool, which includes the University’s endowment as well as capital reserves from Stanford Hospital & Clinics and Lucile Packard Children’s Hospital. According to Powers, a better measurement of the health of the portfolio is a three-year rolling return. This number currently stands at approximately 12 percent. The 2011 report recorded a three-year rolling return of 1.2 percent, largely due to the 25.9% drop in 2009.
The University also reported that during a slightly later 12-month period, which ends August 31, its endowment grew by 3.2 percent to $17.0 billion.
While SMC has a “cautious” outlook on the economy in the short-run, Powers said he is extremely confident about the portfolio’s long-term strategy and its ability to mitigate risk.
According to Powers, the University’s portfolio has experienced an increase in its liquidity and flexibility, a point of optimism moving forward. A large portion of venture capital, in the portfolio went public this year, resulting in an increase of cash on hand.
The merged pool is compromised of six smaller portfolios, each varying in size, according to Powers. These smaller portfolios are separated by asset classes and handled by individual fund managers who are chosen by the SMC because of their expertise in the field. Asset classes include fixed income, private equity, public equity, natural resources, real estate and absolute return–which generally consists of hedge funds.
Stanford’s investment results are comparable to Yale University’s, which reported a 4.7 percent increase in its endowment for the fiscal year ending June 30, bringing its endowment to $19.3 billion overall. Harvard’s endowment, on the other hand, shrank by 0.05 percent, putting it at $30.7 billion.
“Thanks to the generosity of Stanford’s donors and disciplined financial management, and despite low investment returns, the endowment had modest growth last year,” said Randy Livingston, university vice president for business affairs and chief financial officer, in a University press release.
“Our endowment is still smaller than preceding the 2008-2009 financial downturn and we continue to be concerned about the possible reductions in federal research funding and an investment downturn driven by global economic malaise,” Randy Livingston said.