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Uploaded: Wednesday, September 23, 2009, 2:25 PM
Stanford posts biggest-ever investment loss
Over 400 laid off, salaries frozen, programs cut to respond
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by Chris Kenrick
Palo Alto Online Staff
Investment losses at Stanford University have led to more than 400 staff layoffs, a campus-wide salary freeze, program consolidations and a postponement of $1.1 billion in capital projects, the university said Wednesday.
Stanford's primary investment pool lost 25.9 percent in the 12 months that ended June 30, more than quadruple the amount of any previous loss, the university reported. The largest previous investment loss was a decline of 6.2 percent in 1974.
The Stanford losses were similar to those experienced by the U.S. equity market as measured by the S&P 500 Index.
Fearing a 30 percent plunge in the university's endowment value, Stanford President John Hennessey in April ordered a $250 million dollar reduction over the next two years in the university's draw on its endowment. The measure was an effort to help restore the endowment principal, which plummeted from $17.2 billion in 2008 to $12.6 billion as of Aug. 30, 2009.
At the time, Hennessey said the reduction would require "deep cuts, and we know it will affect hundreds of dedicated employees, but we saw no alternative."
Hennessey ordered a $100 million dollar reduction in the endowment draw this fiscal year, which began Sept. 1, followed by a $150 million reduction next year.
The university's budgeted endowment payout for this fiscal year is $829.6 million, about 6.6 percent of the beginning-of-year endowment value.
The university has "largely completed" the budget cuts necessitated by the lower endowment payout, Wednesday's announcement said.
"The university reacted quickly as the magnitude of the investment downturn was recognized last winter," said Vice-President for Financial Affairs and Chief Financial Officer Randy Livingston. "We believe we have accomplished the necessary budget reductions without need for further cuts in the coming years, provided that we can resolve the financial aid shortfall and investment markets don't go into another tailspin."
Despite the downturn, Stanford said it remains committed to a financial-aid program announced last year that eliminates tuition, room and board charges for students from families making less than $60,000 a year; and eliminates tuition for students from families making less than $100,000 a year.
Financial aid remains a challenge, the university said, as the endowment payout supporting financial aid is decreasing at the same rate as other endowment funds.
Stanford has suspended plans to renovate Memorial Auditorium, Frost Amphitheater and the old Chemistry Building on Lomita Drive.
Earlier in the year, Provost John W. Etchemendy said Stanford will delay several construction projects, including new buildings for applied physics, biology and mechanical engineering; the East Campus Childcare Center; a new police station; the Medical School's Foundations in Medicine and Science Building and an expansion of the Hoover Institution.
Other projects are moving forward, including the Graduate School of Business Knight Management Center and parking lot; the Lorry I. Lokey Stem Cell Research Building; the Jen-Hsun Huang Engineering Center and the Center for Nanoscale Science and Technology; the Li Ka Shing Center for Learning and Knowledge and the Bing Concert Hall.
Stanford's primary investment pool, known as the Stanford University Merged Pool (MP), includes most of the endowment and expendable funds as well as capital reserves from Stanford Hospital and Clinics and Lucile Packard Children's Hospital.
"The Merged Pool experienced unprecedented losses during the simultaneous sell off in global markets from September through March," said John Powers, president and chief executive officer of the Stanford Management Company.
"Since March, the Merged Pool has begun the gradual process of rebuilding assets and improving portfolio liquidity," he said.
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Posted by ex employee, a resident of the Greenmeadow neighborhood, on Sep 23, 2009 at 6:02 pm I worked at Stanford for 9 years and during that time the raises were minimum. 2 previous years had no raises at all, "salary freeze". The starting salaries were not competitive, administrative costs were poorly managed and capital spending seemed suspicious. Staff was management heavy, with managers and directors that were counter productive. Union employees were treated horribly. In the last 10 years, Stanford has gone downhill as a place to work.
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Posted by Anonymous, a resident of Another Palo Alto neighborhood, on Sep 24, 2009 at 7:03 am Stanford didn't use "Portfolio Insurance" hedging? 25 percent is more than I would have expected from a managed portfolio.
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Posted by been here, a resident of Menlo Park, on Sep 24, 2009 at 9:59 am Yale is down 24.6% and Harvard 27.3%. Both are intending to continue the same strategy, investing in things only available to institutions. What happened to them and to Stanford is not all bad, it seems, despite all the hand-wringing at other stages of this.
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Posted by blah blah blah, a resident of Stanford, on Sep 24, 2009 at 10:25 am Stanford's primary investment pool lost 25.9 percent in the 12 months that ended June 30,
and how much has it gained in the last 3 months?
this is just a numbers game
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Posted by Tom Terrific, a resident of the College Terrace neighborhood, on Sep 24, 2009 at 10:31 am
...Old news.....and the portfolio is up about 24% from the beginning of the years. So not all of the losses have been recouped, but things are turning around. And let's not forget all of the years that they earned from 15% to 22%.....
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Posted by david w reed, a resident of the Meadow Park neighborhood, on Sep 24, 2009 at 12:02 pm chupa
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Posted by Mike, a resident of the Crescent Park neighborhood, on Sep 24, 2009 at 3:15 pm So here is the good news-
Stanford has decisively taken the steps outlined above to adjust for decreased funds. Short term and long term steps to conform with their current financial reality.
So isn't this what the City of Palo Alto and the State need to do as well? Why can't our local and state leaders face a budget problem with intelligence instead of whining it is mostly a revenue problem and look for more fees and taxes to impose?
Of course, part of the answer is that Stanford is financially managed by business people- not politicians.
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Posted by Walter_E_Wallis, a resident of the Midtown neighborhood, on Sep 25, 2009 at 4:10 am
Walter_E_Wallis is a member (registered user) of Palo Alto Online So we see that all investment advisers are kings in a rising market. Perhaps a better policy would have been to invest broadly in the economy and to stop supporting anti-capitalism policies.
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Posted by Chart is in order., a resident of the Community Center neighborhood, on Sep 26, 2009 at 5:32 am What goes up - can go down.
Overall it has gone up!!
Chris Kernic,
Please post a chart. It will do more justice to the article. Without historical data this article is standing on no legs.
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Posted by Walter_E_Wallis, a resident of the Midtown neighborhood, on Sep 27, 2009 at 6:11 am
Walter_E_Wallis is a member (registered user) of Palo Alto Online The trend is up, but so is the vigorish. Chart the initiative killers of unjustified environmental regulation and imposed abstemiousness and the rewards of that extra step seem not worth the effort. Let Stanfoo take their foot off the windpipe of progress.
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Posted by susie, a resident of the Crescent Park neighborhood, on Oct 6, 2009 at 10:14 am The Stanford President should resign. All the donations and gifts have been routed by the mismanagement of the endowment and overbuilding.
And its the secretaries who are taking the can for it. And they are not even just culling the dead wood. Its just across the board unfair cuts. Hennessey keeps his huge wealth and big house on the hill.
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