I’m thrilled to sit down with Priya Jaiswal, a renowned expert in banking, business, and finance, whose deep knowledge of market analysis and portfolio management offers invaluable insights into the complex world of institutional investments. Today, we’re diving into Stanford University’s impressive 14.3% return on its Merged Pool for Fiscal 2025, exploring the strategies behind this success, the challenges of sustaining long-term growth, and the potential impacts of policy changes on endowment management. Join us as we unpack what this means for Stanford and the broader landscape of university endowments.
Can you explain what the Merged Pool is and how it fits into Stanford’s broader financial picture?
Absolutely. The Merged Pool is essentially Stanford’s central investment portfolio, managed by the Stanford Management Company. It includes the university’s endowment, which is the largest component, but also encompasses other long-term funds like the capital reserves of Stanford’s health care system. Think of it as a diversified pot of money that’s invested across various asset classes to generate returns. These returns are critical because they support Stanford’s mission—funding everything from scholarships to research. Strategically, the Merged Pool allows Stanford to pool resources for better investment opportunities while balancing risk, ensuring there’s a steady flow of income to meet both current needs and future goals.
What do you believe were the key drivers behind the Merged Pool’s strong 14.3% return in Fiscal 2025?
The 14.3% return is quite remarkable, especially after a few uneven years. I’d attribute this to a combination of favorable market conditions and smart asset allocation. Given Stanford’s heavy tilt toward private equity—around 38% of their target allocation—I suspect strong performance in that space played a big role, as private markets have been rebounding. Additionally, their exposure to international equities, at 16%, likely benefited from global market upswings. It’s also possible that their absolute return strategies, which make up 19% of the portfolio, captured gains from alternative investments. Overall, it seems like a well-timed alignment of their diversified strategy with a recovering economic environment.
After returns of 8.4% in 2024, 4.4% in 2023, and a loss of 4.2% in 2022, what changed in 2025 to produce such a significant jump?
The jump to 14.3% in 2025 likely reflects both external and internal shifts. On the external side, we’ve seen a recovery in alternative investments, which had been sluggish in prior years due to economic uncertainty. Markets, especially in private equity and international stocks, have shown stronger growth, and Stanford’s portfolio was well-positioned to capture that. Internally, there may have been tactical adjustments—perhaps a rebalancing of assets or a renewed focus on high-growth opportunities. It’s also worth noting that after a tough year like 2022, endowments often reassess risk and refine their approach, which could have contributed to this turnaround. The key is that Stanford’s team likely stayed disciplined while adapting to a more favorable market.
The five- and ten-year annualized returns stand at 11.7% and 9.4%, respectively. How do these figures reflect Stanford’s overall investment philosophy?
These longer-term returns highlight Stanford’s commitment to a balanced, patient approach. Achieving 11.7% over five years and 9.4% over ten years suggests they’re not chasing short-term wins but focusing on consistent, risk-adjusted growth. Their heavy allocation to private equity and absolute return strategies shows a willingness to embrace illiquidity and complexity for higher returns over time. This aligns with their mission to support students and research in perpetuity, as they need returns that outpace inflation, taxes, and distributions. It’s a testament to a strategy that prioritizes diversification and long-term vision, even if it means weathering occasional dips like in 2022.
With the potential increase in the federal excise tax on endowments from 1.4% to 8%, how might this affect Stanford’s investment strategy?
A jump to an 8% tax rate would be a significant challenge. It directly cuts into net returns, which means Stanford might need to rethink how aggressively they invest or how much they distribute to the operating budget. Higher taxes could push them toward more tax-efficient strategies, perhaps leaning on certain asset classes or structures that minimize taxable gains. It’s a balancing act because they still need to hit return targets to sustain the university’s needs. I’m sure they’re already modeling scenarios to mitigate the impact, but it could force tougher decisions about spending priorities or even fundraising to offset the loss in net income.
The endowment is valued at $40.8 billion, while the Merged Pool stands at $47.7 billion. Can you break down what accounts for this difference?
The difference between the two figures comes down to what’s included in each. The endowment, valued at $40.8 billion, is strictly the core fund dedicated to supporting Stanford’s academic and operational mission over the long term. The Merged Pool, at $47.7 billion, is broader—it includes the endowment plus other long-term investable assets, like the capital reserves of Stanford’s health care system and possibly other restricted funds. These additional components are managed alongside the endowment to benefit from economies of scale in investing, but they’re separate in purpose and accounting. That’s why the Merged Pool’s value is higher.
What is your forecast for the future of university endowments like Stanford’s, especially in light of economic and regulatory uncertainties?
Looking ahead, I think university endowments like Stanford’s will face a mixed landscape. On one hand, their diversified portfolios and sophisticated management teams position them well to navigate economic volatility. With strong allocations to private equity and alternatives, they can capture growth even in uneven markets. However, regulatory pressures, like potential tax hikes, and geopolitical uncertainties could squeeze net returns. Inflation is another concern—endowments need to grow faster than rising costs to maintain purchasing power. I expect Stanford and similar institutions will double down on innovative strategies, perhaps exploring new asset classes or partnerships, while staying laser-focused on long-term sustainability. It’ll be a test of adaptability, but I’m optimistic about their ability to evolve.
