The Stanford Management Company was founded in 1991 to manage the endowment of Stanford University. The so-called Merged Pool of assets is now nearly $30 billion; it paid out $1.3 billion in funds for operating expenses in 2018, approximately 20% of the total. The net investment return was 6.5%, in the top decile of endowment funds. The endowment is second only to Harvard’s.
Some observations and comments from Robert Wallace, the CEO:
- Private equity was the best performing asset class in 2018.
- That said, they don’t invest with large hedge or venture funds because fund managers are not aligned with the interests of the limited partners. For example, a $20 billion fund with a 1.5%/20% fee structure would generate $300 million in the management fees alone. No fund requires even that much to run operations. So, the incentive on top of that is excessive.
- Globally there is $16 trillion of debt that is yielding below zero! This is pushing up valuations of many different asset classes, even ones with high risk profiles.
- Anything that’s a proxy for bonds has a frothy valuation, for example, US property.
- Stanford trustees have chosen to divest from traditional, carbon-based energy investments. Even without that policy, the thesis is that new, large scale investments in oil and coal are very risky because the payback on them are long term and they may not be economically viable in the face of emerging technologies.
- We are in a high valuation environment for US equities. The trailing 10 year return given an investment today will almost certainly decline for the near future.
See more details: https://news.stanford.edu/press-releases/2019/10/02/stanford-releasereturn-endowment/