What is Stanford Management Company?

Established in 1991, Stanford Management Company (“SMC”) is responsible for investing the University’s endowment and other long-term financial resources, collectively, the Merged Pool. Through careful stewardship of these assets, SMC helps current and future students and scholars fully pursue their academic interests. SMC is a department within the University and its staff are Stanford employees and include many graduates of the University. SMC is overseen by a Board of Directors appointed by the University Board of Trustees.


What is the purpose of the Endowment?

Composed of approximately 7,900 individual funds established by generous donors, the Endowment supports Stanford’s research and education mission by providing a valuable source of perpetual funding for student financial aid, faculty positions, scientific research, the arts and humanities, and innovations in healthcare and sustainability. Providing a significant portion of the University’s operating budget each year, the Endowment benefits all Stanford students, faculty, and staff.

Who works at SMC?

SMC is led by Robert Wallace, who serves as SMC’s Chief Executive Officer and Chief Investment Officer. The SMC team is comprised of about 20 investment professionals, as well as a professional staff of approximately 35 that performs the office’s operations, legal, IT, and administrative work.


How diverse is the SMC team?

SMC is an active participant in Stanford’s Inclusion, Diversity, Equity, and Access in a Learning Environment (IDEAL) initiative and follows Stanford’s Equal Opportunity Policy in all its staffing decisions. The majority of SMC’s current staff are women or racial or ethnic minorities.


What is the Merged Pool and how is it different from the University endowment?

The Merged Pool is Stanford’s principal investment portfolio, containing the majority of the University’s endowment, long-term funds from Stanford’s hospitals, and funds that the University chooses to treat as long-term investments. Some of the University’s endowment is held in commercial lands and real estate near Stanford’s main campus and is not part of the Merged Pool. 

How does SMC decide where to invest?

SMC’s investment strategy begins with two primary goals: to disburse meaningful amounts of the endowment every year to support the University’s operating budget, and to preserve the value of the Merged Pool, adjusted for inflation and spending, so that it can continue to support future generations of students and scholars. These dual goals require an equity-oriented portfolio capable of generating sufficiently high returns, while mitigating volatility and risk through careful diversification. Read more about SMC’s asset classes.

Are SMC’s investments mostly in publicly traded stocks?

SMC does own public stocks. However, the endowment’s long-term orientation allows for a reasonable amount of illiquidity in exchange for higher expected returns. For this reason, roughly half of the portfolio is invested in less liquid asset classes like private equity and real estate.


What sort of time horizon does SMC consider when making investments?

Given the perpetual nature of the endowment, SMC naturally has a very long-time horizon upon which to base its strategy. SMC seldom considers time frames of less than three years when making investments, and it is often focused on outcomes five and ten years after deploying capital. SMC primarily focuses its investments on businesses and assets that provide valuable goods and services to their customers in the long run.

SMC’s long-term focus makes it critically important to thoroughly consider environmental, social, and governance factors in its work, since these factors clearly impact the value of businesses and assets in the long run. This important aspect of SMC’s work is described in its Ethical Investment Framework.


How does SMC select its investment partners?

Given the breadth of investments and strategies in the Merged Pool, SMC works with a range of external investment partners to build its portfolio. These carefully selected “active managers” have the potential to add value above and beyond asset class averages. SMC focuses on partners who have a thorough and repeatable process that incorporates relevant qualitative and quantitative information, have superior judgment concerning risk and return, and consider an adequate time horizon. Where appropriate, partners must be able to add strategic and operational value to their holdings. Finally, SMC’s investment partners must have financial and fiduciary interests that are closely aligned with Stanford’s interests, and they must invest in a manner consistent with the Ethical Investment Framework. SMC is very careful in selecting its partners, as few investment firms meet all of these characteristics.


How diverse are SMC’s external partners?

SMC has many diverse partners that have made significant contributions to the endowment’s investment performance. As of 2022, about 38% of the Merged Pool’s U.S.-based assets were managed by investment firms that are majority-owned, founded, or led by women or racial and ethnic minorities. This percentage far exceeds the asset management industry average and compares favorably to other university endowments.


Why are SMC’s partners and investments confidential?

Adding value to the endowment through the careful selection of partners and investments is difficult, specialized, and highly competitive work. Disclosure of detailed information about the endowment’s portfolio could erode SMC’s competitive advantage and adversely affect investment performance. Comprehensive information about the endowment portfolio is reviewed regularly by SMC’s Board of Directors, which includes Stanford’s President and the Chair of the University Board of Trustees.


What is the Ethical Investment Framework?

The Ethical Investment Framework (“EIF”) summarizes how SMC considers environmental, social, and governance factors in its investment work. Reflecting considerations of longstanding importance to the endowment and the University, the EIF was developed by SMC in 2018 and formally adopted by the Board of Trustees soon thereafter.


What does the EIF say?

The EIF makes clear that environmental, social and governance issues are important considerations in SMC’s investment decisions. Companies or industries that disregard human or environmental welfare do not normally represent attractive long-term investment opportunities. SMC strives to prudently balance all factors that can alter risk and return in the endowment portfolio, so it must incorporate these factors into its investment analysis, just as it considers other factors and risks. This is true at the level of SMC’s strategic asset allocation, but also at the more granular level of partner and investment selection.


Can Stanford’s Trustees require SMC to divest from a company or industry?

Stanford’s Trustees have established specific criteria for those occasions when they will consider requiring divestment on moral grounds. The criteria state that the actions of the company or industry in question be “abhorrent and ethically unjustifiable.” The Trustees’ Special Committee on Investment Responsibility (SCIR) is charged with considering these and other investment responsibility issues, as well as petitions for divestment, and when appropriate, making recommendations to the full Board of Trustees. For more information, see the Trustees’ Statement on Investment Responsibility.


What is Stanford doing to address climate change?

Climate change is a singularly important issue for the University and SMC. It is imperative that the world moves to lower emission sources of energy as quickly as practical. Stanford’s Trustees have committed the University to be part of this transition, promising that both the investment portfolio and campus operations will reach net zero greenhouse-gas emissions no later than 2050. Stanford is in the vanguard of this transition in many important ways, including through the newly established Stanford Doerr School of Sustainability.

SMC has formed a Net Zero Working Group, composed of academic and investment experts, to assist it in developing a path to net zero emissions for the endowment that will satisfy SMC’s fiduciary obligations. SMC has begun the process of quantifying the portfolio’s current emissions and is in regular dialog with government agencies, expert organizations, and peer endowments that, like Stanford, are working towards net zero. As part of its investment effort, SMC seeks out and invests in companies, technologies, and assets meeting its underwriting criteria that will both drive and benefit from the energy transition.

At the same time, Stanford’s Trustees have expressly acknowledged that the energy transition will not happen overnight and that access to energy from conventional sources remains a critical need, especially for those in developing countries and energy-impoverished areas. Accordingly, SMC also considers select investments in cleaner fossil fuels, like natural gas, if they are consistent with established climate science and the energy transition the world is undertaking.


How have SMC’s investments in energy changed?

Both the quantity and the character of SMC’s energy investments have evolved over the last decade. SMC had substantial investments in fossil fuel energy, totaling approximately 16% of the Merged Pool at their peak in 2011. Today, active fossil fuel holdings make up less than 2% of the Merged Pool. The types of energy investments SMC makes now are also quite different than in previous decades, since they are explicitly predicated on a scientific understanding of the externalities – the full economic costs borne by society – associated with carbon in the atmosphere.


What is SMC’s broader role in the community?

SMC’s principal work is the stewardship of Stanford’s endowment and other long-term financial assets. Beyond this core responsibility, SMC manages the Intermediate Pool, which consists of assets owned by Stanford schools and departments that are invested in highly liquid, passive index funds. Certain schools and departments also own assets that they invest and manage directly and for which SMC provides administrative support. SMC also contributes to academic life at Stanford by teaching an undergraduate economics seminar on investment management, while members of the SMC senior staff co-teach or guest lecture in a variety of courses throughout the University’s graduate and undergraduate schools. Finally, through its internship program, SMC provides a talented group of students with a hands-on introduction to the office’s work and a perspective on investment careers.