Dear Daily Editors,

We read with concern your Feb. 20 article on endowment investments. While we understand that these financial topics are complex, your article was inaccurate and misleading, and we believe it is important to set the record straight on a number of points.

Stanford’s endowment is invested through various very common legal entities. The domicile, or legal establishment, of these common vehicles does not indicate the location of the investments they hold. For example, most of the U.S. vehicles used by the University are domiciled in Delaware, a typical jurisdiction for onshore investments. However, Delaware represents no larger a portion of Stanford’s U.S. investment portfolio than any other state.  The same is true for offshore jurisdictions. Stanford’s international investments, which comprise less than 30 percent of its entire investment portfolio, are spread around the world, rather than concentrated in the Caribbean as you incorrectly suggest. In fact, Asia and Western Europe collectively represent the substantial majority of the University’s foreign investments. Using the domicile of the vehicle to ascertain investment exposure is highly misleading to your readers and, if applied to any other institutional investment portfolio, would lead to similarly large errors.

Stanford uses offshore vehicles for a variety of purposes. Often, they are employed when there is no alternative way to access foreign investments. Importantly, Stanford’s offshore vehicles have been, and continue to be, reported to the Internal Revenue Service and are taxed in accordance with U.S. and foreign law. We take our tax reporting responsibilities seriously and disagree with your inference that we have hidden offshore investments from the authorities. Your article leaves a false impression, when in fact Stanford discloses these investments to both U.S. and foreign tax authorities. Your article also incorrectly states that offshore vehicles are not subject to U.S. tax; they do pay U.S. tax, such as dividend withholding tax and tax on effectively connected income.

Recent tax legislation will tax Stanford and about 30 of its peers selectively. Contrary to your claim, the new Excise Tax will be levied on both onshore and offshore investment income without distinction. As we always do, Stanford will comply with this new law and pay taxes due. We are also bound by state and federal laws governing the fiduciaries of trusts, which make clear that fiduciaries must take into account, in addition to prudent investment strategies, the tax implications of their investment decisions. That is, in making investments, the university should take reasonable steps to minimize taxes in order to maximize the amount of funds available to support its academic mission. We will continue to observe these fiduciary obligations with discipline and within the law.

It is important to remember the purpose of our endowment, which is to help support the university’s research and education mission in perpetuity, as well as make possible our generous financial aid program. That program is the reason more than 80 percent of Stanford undergraduates complete their degrees without debt, and why we can waive tuition for families with incomes up to $125,000. Over the years, thousands of donors — generations of alumni, parents and friends — have established endowed funds for scholarships, fellowships, professorships and many other purposes in support of our academic mission. Today, Stanford’s endowment comprises nearly 8,000 individual funds, each one named and used in accordance with the donor’s wishes and all in service to Stanford’s core mission of teaching and research.

Stanford’s investment program strives to enable this stable support for current and future generations of Stanford students and scholars while observing both the letter and the spirit of the law.

Rob Wallace
Chief Executive Officer, Stanford Management Company

Randy Livingston
Vice President for Business Affairs and Chief Financial Officer

Editor’s note: 

The Daily appreciates University administrators’ response to our article on Stanford’s offshore investments published last week. We want to address several points made.

First, to the point that the location (“domicile”) of a partner organization does not indicate where the held money is invested: The Daily article discussed the University’s relationship with Caribbean tax havens, not where money vested in tax haven-based corporations is allocated. We drew information directly from Stanford’s FY16 Form 990, the tax return for 501(c)(3) nonprofits. Where investments in the Caribbean are identified in this document, they are referred to (under Schedule F, Part 1, Section 3, Column d.) as “Activities conducted in region (by type).”  We updated our article to clarify that money is invested through partner organizations based in the regions cited rather than invested wholly in the region.

Second, the original article did not claim that Stanford’s offshore investment practices are illegal and quoted IRS documentation and a University spokesperson on the legality of the practices.

Third, the article has been updated to state that much money invested through corporations based in places like Bermuda and the Cayman Islands is not subject to full taxation, rather than not subject to taxation in general.  Various sources such as The New York Times and the Center for Economic and Policy Research agree that taxes on unrelated business taxable income (UBTI) can be avoided by collecting this income in low-tax countries.