$134 Billion and Counting!

Fact: Stanford's endowment, like the other universities named in our petition, is restricted by charter and only the interest on the funds can be used for the operation the University. Furthermore, the majority of these endowment funds are restricted by the donor's-intent, and cannot be used in a general manner.

Conclusion: On the face of it, our plan to leverage Stanford's endowment to fully fund our University and to create a financial safety net for adjacent universities seems impossible. And if it is impossible at Stanford, it is impossible at Harvard, Yale, MIT, and Princeton.

Therefore, our petition must fail.

But that's not the whole story. Please keep reading.

The combined endowment of the top five private universities exceeds $134,000,000,000. That is one hundred and thirty four billion dollars, a considerable sum, no matter how you look at it.*

The endowment is invested in a variety of short and long term, low risk and high risk investments, with the goal of growing the fund over time. The first rule of this kind of investment - preserve the endowment and never lose any of the principal, the original funds. At Stanford this task falls to the Stanford Management Company, a group of sophisticated investors led by CEO Robert Wallace. This is the Mission Statement of the Stanford Management Company:

"The dual goals of our mission dictate an investment program that is equity-oriented to generate sufficiently high long-term real returns, and well diversified to dampen annual volatility and mitigate the risk of principal loss. With the University’s goals in mind, SMC applies a rigorous assessment of risk and return to formulate an optimal asset allocation model that can deliver adequate returns over time...

SMC is the fiduciary for the $30 billion Merged Pool, which comprises the substantial majority of Stanford’s investable assets. Endowment funds constitute three-quarters of the Merged Pool. Other investment assets include non-endowment gifts, other reserves, and funds relating to the Stanford Hospital and the Lucile Packard Children’s Hospital."

https://smc.stanford.edu

There are two important things to remember about the endowment:

1. The principal (in this graphic $27.7B), under the current rules, is never drawn-down. The University can only access to the interest earned on these funds. The payout is set at 5%, regardless of market conditions. In most years the fund out-performs the market, and even after the 5% payout, the fund grows. Occasionally the fund earns less than 5% annually. Theoretically, the University can still count on a 5% payout because SMC's investment strategy is designed to "dampen annual volatility and mitigate the risk of principal loss".
   

2. The majority of these underlying endowment funds are restricted - the donor's have requested that they be used for very specific purposes. For instance, in my role as the Executive Director of the undergraduate and graduate design degree programs at Stanford, I administer the proceeds from a small endowment called the Jepson Fund. An amazingly generous donor gave us this endowment to support teaching in our department - every year I get 5% of the earned-interest from this fund to pay the salaries of lecturers and teaching assistants.

So, on the face of it, and given the restriction on the use of the principal, and the rules associated with donor's-intent, our plan to leverage Stanford's endowment to fully fund our University and to create a financial safety net for adjacent universities seems impossible.

But let's dig a little deeper.

Reviewing the annual reports of the top five endowments reveals that in most cases, at least 20% of these funds ($26B) are unrestricted, relatively liquid, and could potentially be leveraged for the plan that we have outlined in our petition. Our plan does not assume that we would need to spend-down the principal in these endowment, although that is not an impossible scenario. In any event, there are other ways of leveraging these unrestricted funds to meet our objectives.

Remember, that this is an unprecedented crisis, on our campus and in higher education across this country. The Trustees at Stanford, so called because they have a fiduciary responsibility to the University, have significant powers in times like these. Charters can be realigned to face our current reality. And donors can be engaged to help solve the problem. The "donor's-intent" that currently restricts much of the endowment, can be reviewed and adjusted, and our donors are some of the most generous and socially-minded in the country. let's not exclude them from this conversation.

All it takes is the leadership to recognize that we need to reframe our response to this crisis. And the vision to chart a future world of higher education that is more equitable, robust and thriving.

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* NOTE: Due to the coronavirus crisis, and the market volatility it created, it is currently difficult to estimate the exact size of Standford's endowment or of any university's endowment that has substantial exposure to market risk. However, various market indexes, which fluctuated wildly February through March, have almost completely recovered. Nevertheless, investment decisions made during this crisis period could substantially impact the value of any school's assets.

This table represents endowment figures current as of September 2019 and by any measure these numbers are staggering.  Only private non-profit Universities made the list, but there are massive endowments in the public university system as well. The second largest endowment, behind Harvard, is the $30B held by the University of Texas public university system.

Harvard - $38B

Yale - $29B

Stanford - $26B

Princeton $25B

MIT $16B

* https://thebestschools.org/features/richest-universities-endowments-generosity-research/