University investments’ 8.4% FY24 return trails peer institutions, public markets

The University announced an 8.4% investment return in its Merged Pool for the 2024 fiscal year (FY24) on Oct. 10. The Merged Pool, valued at $42.8 billion as of June 30, consists of a majority of the University’s endowment, funds from Stanford Health Care and Stanford Medicine Children’s Health and additional long-term reserves of the University. 

This fiscal year’s gains nearly doubled from the 4.4% investment gain from FY23. However, gains remain far below the 40.1% returns from the 2021 fiscal year as published in the FY21 annual financial report. 

The Stanford Management Company (SMC) is responsible for managing Stanford’s endowment investments and other financial assets, investing according to the long-term goals of the University. The endowment incorporates more than 8,100 funds established by philanthropic donors, designated for specific purposes over the years, according to the SMC’s website. These contributions finance student scholarships and advance particular fields of study through professorships, fellowships and research funds.

Such fluctuations are to be expected as a natural condition of capital markets investments, according to University spokesperson Luisa Rapport. Although Stanford tries to mitigate volatility through “sensible levels of portfolio diversification,” risk can never be eliminated entirely, Rapport wrote. 

Though the fiscal year 2021 far exceeded performance assumptions — likely influenced by COVID-19’s unpredictable effects on global markets — Rapport said that “across a longer time horizon, short-term variability is smoothed out and performance tends to fall within much tighter bounds.”

Stanford’s performance trailed behind the 10.1% median return for U.S. college and university endowments for the year, as preliminarily reported by Cambridge Associates. A typical investment portfolio — with 70% directed towards global stocks and 30% to high-quality U.S. bonds — also performed better than Stanford’s investments, earning a 13.5% return over the same period.

However, the median size of U.S. college and university endowments included in the Cambridge Associates report was only $1.2 billion. Rapport wrote that “smaller endowments tend to be heavily invested in public stocks, while Stanford (and some of its large peers) have substantial exposure to illiquid private market strategies, such as private equity and venture capital.”

Last year, public markets outperformed private market alternatives, potentially explaining for the discrepancy between Stanford’s performance and those of other portfolios, according to CEO of SMC Robert Wallace in the Stanford Report.

Over longer periods, private market investments have been profitable to Stanford. Rapport reported that the University’s 10-year Merged Pool annualized net return is 8.6%, which is 1.7% per year above the Cambridge Associates College and University 10-year median and 2.4% per year above the performance of a passive “70/30” portfolio.

Stanford News reported that during FY24, Stanford’s $37.6 billion endowment disbursed $1.8 billion in funding. 

“Support for the Stanford community, particularly for students from low- and middle-income demographics, is one of the most critical programs that endowed funds sponsor,” wrote Rapport. She noted that nearly 87% of all undergraduates graduate from Stanford with no student debt. 

According to Rapport, the endowment’s payout is increasing to $1.95 billion dispersed to support the operating budget in FY25.

The SMC invests capital in accordance with its Ethical Investment Framework which is guided by the Stanford Board of Trustees’ Special Committee on Investment Responsibility (SCIR). The framework notes that the University’s Board of Trustees may elect to divest specific companies or categories of investment that are deemed “abhorrent and ethically unjustifiable.”

In light of the ongoing Israel-Gaza war, student groups such as Stanford Students for Justice in Palestine (SJP) unsuccessfully petitioned the University to divest from defense companies tied to the Israel Defense Forces. While the SCIR rejected SJP’s request to make the University’s endowment investments public on Oct. 15, Rapport disclosed that there have been “no material changes” to the University’s long-term investment strategy as a result of geopolitical tensions.

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