Board of Trustees approves increased endowment payout rate
The Stanford University Board of Trustees has approved an increase in the target payout rate of the university's endowment from 5.0 percent to 5.5 percent to help fund important university capital improvement projects over the next several years.
The increase, which was approved by the board at its meeting this week, will take effect in fiscal year 2008 and is expected to remain in place for at least five years. However, the rate will be reassessed by the trustees periodically.
The increased income from both unrestricted endowment and restricted funds will allow continued support of core academic programs while freeing up university general funds to carry out critical infrastructure and seismic improvements as well as facilities projects essential to the university's academic mission. Among the projects that are likely to benefit from the increased payout are the new Science and Engineering Quad, the School of Medicine's Learning and Knowledge Center, the Stanford Institutes of Medicine, the Munger Graduate Residence and the Knight Management Center. In addition, a portion of the increased income will support financial aid for graduate and undergraduate students.
"Stanford's faculty and student body are without peer," said board Chair Burt McMurtry. "We must ensure that our facilities are just as exceptional if we are to remain on the cutting edge of pursuing and creating knowledge for the benefit of society. Building top-notch teaching and research facilities is a critical part of achieving the university's long-term vision and central to our commitment to help find solutions to intractable global problems and educate tomorrow's leaders."
Martin Shell, vice president for development, said: “As government support for science and technology research becomes increasingly limited, universities must find other means of funding for these areas. This policy, along with the infusion of new investments through The Stanford Challenge, will help Stanford continue to lead the way in the discovery of potentially transformative scientific and technological breakthroughs."
The trustees are responsible for evaluating the payout policy periodically to ensure that the endowment can meet current and future needs. The payout rate has been modified several times in recent decades, most notably to help finance seismic upgrades and renovations following the Loma Prieta earthquake in 1989.
"Due to strong donor support and outstanding investment management, Stanford's endowment has increased in recent years such that we are confident a slightly higher payout rate is supportable, responsible and, indeed, advisable given our needs," said Vice President for Business Affairs Randy Livingston.
In fiscal year 2008, the payout rate will be reset to 5.5 percent, resulting in an estimated $160 million in additional endowment payout. This increased payout will free up approximately $136 million in unrestricted funds that can be used for facilities. In subsequent years, the university will return to the smoothing formula that is used to cushion the endowment against wide market swings that can influence investment returns from year to year. The target rate used by the formula will adjust to 5.5 percent. The increased payout is not yet reflected in the 2007-08 budget plan approved by the Board of Trustees at its recent meeting.
