Home > News > Newsmakers > Stanford Investment Portfolio Generates 13.1% Annual Return, Slightly Beating Higher Ed Median Returns
Newsmakers

Stanford Investment Portfolio Generates 13.1% Annual Return, Slightly Beating Higher Ed Median Returns

Endowment gains 10.7%, grows to $24.8 billion.

By Michael Katz

The Stanford Management Company returned 13.1% for the year ending on June 30, according to the university’s website. The return edged out the broad universe of U.S. colleges and universities, which generated a median 12.9 % during the same period, according to Cambridge Associates. 

The value of the university’s endowment increased by10.7% to $24.8 billion for its fiscal year ending Aug. 31. “We are pleased to report $3.2 billion of investment gains for the year,” Robert Wallace, CEO of Stanford Management Company said in a statement. “Although comprising only a quarter of the total portfolio, public equity holdings led our result with very strong absolute and relative performance.”

Further details of the fund’s performance have yet to be disclosed.

The performance resulted in net annualized returns of 9.5% and 5.8% for the last five and 10 years, respectively, compared to 7.9% and 4.4% annualized median returns for colleges and universities over the same time periods.

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The 2017 results largely outperformed the fund’s returns last year, which yielded -0.4% for the year ending on June 30, 2016.

As the university’s investments office, the Stanford Management Company manages the university’s  $26.9 billion merged pool of total investments. The merged pool is the principal fund for investing the university’s endowment, and includes capital reserves of Stanford Health Care and Lucile Packard Children’s Hospital Stanford, along with other long-term funds.

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Home > News > Research > Increased Leverage Raises Risk for Canada’s Pension Funds
Research

Increased Leverage Raises Risk for Canada’s Pension Funds

Leverage of six largest funds in country has risen to 24% from 19% in 2009.

 

By Michael Katz

Increased leverage due to a lower interest rate environment and demographic shifts is driving the investment stakes higher for some Canadian pension plans.  The average leverage of the six largest funds in Canada rose to 24% from 19% since 2009, according to a recent report by Moody’s. The combined assets of the plans represented C$1.4 trillion ($1.1 trillion) in assets as of 2016.

“As in many other countries, Canadian defined benefit pension plans are facing adverse demographic shifts thanks in part to an aging baby boomer population,” Jason Mercer, assistant vice president of Moody’s, said in a statement. “The active-to-retired ratio, a measure of the relative proportion of contributing members to retirees collecting benefits, has fallen for all six pension managers in the past 10 years as growth in retirees outpaces contributors.”

The pressure to pay higher benefits with lower contributions, in part, has forced the plans to become more reliant on investment income, according to the report.

Further, funds that increase leverage and illiquid assets in order to generate returns high enough to ease funding pressures from aging demographics and low interest rates also increase the pension fund’s asset risk in the event of a market correction. Increasing leverage involves higher risks for pension managers since leverage magnifies losses as well as gains.

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“Weaker net cash flows make funds more dependent on market performance to maintain current funding levels,” added Mercer. “But low interest rates hinder the funds ability to make returns strong enough to offset the net cash flow pressures.”

Canadian public pension funds are generally considered to be of high credit quality, given their strong stability and predictability of future cash flows, predictable national and provincial legal systems, highly-rated sponsors and strong coverage of obligations by high quality liquid assets, according to Moody’s. However, high leverage and less-liquid investments raises risk for the pension funds.

“Should a prolonged decline in investment values materialize, higher interest costs and lower liquidity would further strain fund cash flows,” said the report. “This could result in cuts to retiree benefits and/or increases to contribution rates from employees, and employers would commensurately reduce liabilities and/or bolster pension plan asset positions.”

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