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With great frequency I read in the newspapers or hear from alumni that Stanford is wealthy. I am never sure what "wealthy" means in the case of an institution that makes no profits and subsidizes both learning and research. The reference usually is to our endowment, which amounted to approximately $4.5 billion as of August 31, 1997. Income from endowment in fiscal year 1997 was estimated at 12 percent of our revenues, including those for the operations of the Stanford Linear Accelerator Center. If one were to exclude SLAC, it would have been 14 percent. Budgeted endowment income for the 1998 fiscal year amounts to 14 percent, or 16 percent, if SLAC is excluded. To those of our alumni who say we are wealthy, I always like to respond that it does not feel that way if the university has to raise anywhere between 84 and 88 percent of its revenues every year anew. And a stock-market slump could make that situation worse.

Among the private universities with which we most compete, Stanford aspires to excellences across the widest spectrum of endeavors--arts, humanities, and social sciences; sciences and engineering; college, graduate, and professional teaching, learning, and research. And Stanford does this with an endowment that, while clearly large, as of 1996, amounted to 43 percent of Harvard's endowment, 85 percent of Princeton's, and 78 percent of Yale's. Princeton's endowment per student, $701,146 in 1996, is the highest in the country. Stanford's $288,022 put us in seventeenth position. Compared to our competitors, we do more with less.

Indeed, in 1996-97 endowment income ranked only fourth among the main sources of funds required to operate the university, behind government grants, and contracts; tuition and fees; and private gifts, grants, and contracts. The total university budget for fiscal year 1997 is $1.4 billion (if one counts hospital and clinical services, our overall budget increases to $2.1 billion). A university's endowment is not a checking account, but rather a trust fund; we, the current generation, are trustees for all future Stanford generations. Common sense--and, in many cases, the law--does not allow us to spend the endowment's principal. And our duty to the future does not allow us to spend even all of the interest, dividends, and capital gains; we must reinvest enough to ensure that the endowment is not eaten away by inflation.

In 1991, the university reorganized the management of its investments by establishing Stanford Management Company. While Stanford Management Company has its own board (overlapping some with the Board of Trustees), it is not a Stanford subsidiary but an administrative department of the university that is accountable in regular ways. Under its CEO, Laurance Hoagland, Stanford Management Company has clearly fulfilled the expectations that were associated with the reorganization.

The university's endowment grew from $2.4 billion on August 31, 1992, to approximately $4.5 billion five years later. New gifts over these five years accounted for approximately one-fifth of this rise. The jump in the market value in the most recent years, coupled with expenditure constraint, resulted in endowment payout, as a percentage of revenues, rising to a budgeted 13.8 percent in fiscal year 1998. However, we remain far behind our competitors on this measure. At Princeton, the figure is nearly twice as much.

For the overall financial health of the university, it is essential that we increase the role endowment income plays in the university's finances, but without having that goal accomplished for us by reductions in the other sources of revenue, where our exposure is great. In short, we need to place more emphasis on raising additional endowment funds. The present situation is not one that provides a high level of comfort.

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