October 21, 2009
Stanford Management Company exploring possible secondary sale
Stanford Management Company (SMC), which manages the investment assets of Stanford University, is exploring a partial secondary sale of a portion of its private equity illiquid investments.
The intention of the sale, if it occurs, would be to help rebalance the university investment portfolio after the challenging markets of 2008 and 2009. SMC is exploring the possible sale of less than 7 percent of its total investment portfolio, or up to $1 billion of $6 billion in illiquid investments, along with a pro rata portion of its unfunded liabilities. The total value of Stanford's merged pool, including the endowment and other investments, was $14.5 billion on June 30, 2009.
"We have a strong portfolio of liquid and illiquid investments. We are fortunate that we were able to wait to explore the market for private equity assets at this time," said John Powers, CEO of SMC. "Our liquid assets give us full confidence in our ability to meet our obligations to the university and to our investment partners. The strong rally in equity and credit markets makes now a good time to test the waters in the secondary market for some of our private equity investments, which would further enhance portfolio liquidity and flexibility."
Stanford successfully raised $1 billion in a taxable bond issuance in April 2009. A portion of this was used to retire other university debt, while $800 million was retained as a liquidity buffer for the university. Those funds remain in a cash reserve and could be drawn to meet unanticipated needs of the university.
SMC has retained partners to manage the secondary sale process, in which the Management Company is soliciting interest in bids on minority portions of its investments. The university does not intend to sell majority interest in any single investment partnership. The assets include private equity investment partnerships in buyout, growth and venture funds as well as in natural resources, real estate and distressed securities.
"It is our intention to retain significant stakes in our investment partnerships," Powers said. "We have a great roster of managers who have made significant contributions to the growth of our endowment over time. We value these partnerships, and are exploring interest in bidding on only slices of exposure across groups of managers. This unusual approach preserves our manager relationships and our investment exposure, and allows a potential bidder to gain access to a broad, high-quality portfolio."