Recent attempts by the U.S. congress to enforce spending of university endowments have raised questions about how Stanford spends and invests its $17.2 billion endowment. To answer these questions, The Daily recently sat down with two administrators to discuss exactly where the money goes.

Randy Livingston, vice president for business affairs and the University’s chief financial officer, oversees many of Stanford’s central administrative functions. He also serves on the board of the Stanford Management Company, which works with outside investors to figure how to appropriately allocate the University’s endowment.

Appointed by Stanford’s Board of Trustees, the Management Company consists of alumni volunteers who are knowledgeable about investments.

“Most of the money is managed as one single investment pool, even though the endowment itself is made up of over 6,000 endowment funds,” Livingston said. “This merged pool is allocated across different asset categories.”

Such categories include domestic and international public and private equities, emerging markets, real estate and natural resources. Because Stanford has a stake in a vast variety of funds and investments, neither Livingston nor the Stanford Management Company is concerned about losing the University’s endowment in an economic downturn.

“The investment strategy is to be more diversified,” said Provost John Etchemendy Ph.D. ‘82. “The more diverse, the less any particular downturn will affect all of these different classes [of investments].”

Etchemendy noted that, for example, when stocks are bad, real estate is better.

“Certainly in a bad economy, the value of an endowment goes down,” he said.

As an example, Etchemendy cited the “dot com bubble” in 2001 and 2002, when emerging companies grew and spurred an eventual economic recession.

“In those two years, the size of the endowment actually decreased,” Etchemendy said. “For the last five years, we’ve had very good investment performance. Any investment is volatile, but it’s unlikely that we would lose all of our money.”

The Stanford Management Company ensures that there are no unnecessary risks taken with University funds.

“The ups have been more consistent than the downs,” Livingston said. “There’s a long-term asset allocation strategy that changes every three or four years. In the short term, the Management Company is constantly making small changes based on what asset managements look particularly attractive or risky at that time.”

When Stanford was established in 1891, its endowment was larger than that at Harvard, which was established in 1636. But because Stanford then was required to have its investment in railroad bonds, its endowment lost value.

“Railroad bonds were not a very good investment,” Etchemendy said. “It was only in the 20th Century that we actually went to the state and requested that that part of the original founding grant be changed so that we were allowed to invest more broadly.”

Sometimes ethical dilemmas arise with decisions regarding investments. Stanford’s Advisory Panel on Investment Responsibility (APIR) and the Special Committee on Investment Responsibility (SCIR) work together to avoid such dilemmas.

“For example, with the South American apartheid, APIR recommended to SCIR to make sure we weren’t investing in companies that dealt in South Africa,” Etchemendy said. “The same with tobacco. We don’t invest in tobacco companies.”

Livingston also stressed the care the University takes to avoid legal conflicts over the allocation of donations. Princeton University is currently facing a lawsuit concerning a discrepancy between a donor’s family and university officials regarding the spending of a donation.

“We are very conscientious about spending all of our gifts in accordance with what the donor wishes and what the donor stipulated,” Livingston said. “It’s something we spend a lot of energy on to make sure we are acting in accordance with the donor’s wishes.”

Some endowed funds — marked as unrestricted — flow into general funds, which pay salaries, student services and other University operation costs. The Provost serves as the Chief Budget Officer, deciding how general funds are allocated.

The allocation of endowment funds has not only sparked tensions with individual donors, but also with Congress. Several U.S. senators have recently contemplated the revocation of the tax-exempt statuses of private universities across the country, unless these universities allocate more of their endowments for financial aid.

Livingston shook his head at the mention of the senators’ suggestion.

“I think we have to be very responsive to the concerns raised in Congress, and it would be very painful if we were to lose our tax-exempt status,” he said. “We don’t believe it [will happen].”

Etchemendy agreed.

“I don’t think we’ll change the way we spend our endowment,” he said. “We spend our endowment in a very responsible way. The criticisms have been made by a lack of understanding. 75 percent [of the endowed money] is restricted, so we can’t legally change how it’s spent.”