In Good Company with Nicolai Tangen - HIGHLIGHTS: Robert Wallace

Episode Date: August 29, 2025

We've curated a special 10-minute version of the podcast for those in a hurry.   Here you can listen to the full episode: https://podcasts.apple.com/no/podcast/robert-wallace-managing-stanfords-endowment-balancing/id1614211565?i=1000723660479&l=nbWhat shapes the investment strategy behind one of higher education's largest endowments? Nicolai Tangen sits down with Robert Wallace, CEO of Stanford Management Company, who oversees more than $40 billion for Stanford University. From his unique journey as a professional ballet dancer to becoming a leading institutional investor, they explore the endowment model's challenges, the art of selecting private equity partners, and what makes truly great investors excel. Robert shares how he transformed Stanford's investment approach by dramatically consolidating their external partnerships, and reveals why passion for the work matters more than financial rewards. Stanford's endowment distributes $2 billion annually, supporting students and research. Tune in for an insightful conversation!In Good Company is hosted by Nicolai Tangen, CEO of Norges Bank Investment Management. New full episodes every Wednesday, and don't miss our Highlight episodes every Friday.The production team for this episode includes Isabelle Karlsson and PLAN-B's Niklas Figenschau Johansen, Sebastian Langvik-Hansen and Pål Huuse. Background research was conducted by Isabelle Karlsson.Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi, everybody. Tune in to this short version of the podcast, which we do every Friday for the long version. Tune in on Wednesdays. Hi, everyone. I'm Nicola Tangen, the CEO of the Norwegian sovereign wealth fund. And today, I'm in really good company with Rob Wallace, who's built one of the most impressive careers in institutional investing.

Now, Rob is the president and CEO of Stanford Management Company, and if you are on screen, you can see the wonderful campus behind him. I mean, my, hey, I'm in. envious here. The Stanford endowment runs more than $40 billion and is one of the most successful university endowments anywhere. His journey took him from learning under David Swenson at Yale onto leading Alta Advisors, a London-based investment firm before joining Stanford in 2015. And here he has delivered exceptionally returns. So well done, Rob, and great to have you on. Nice to be with you, Naguoy. Just kick off.

What's the kind of core investment philosophy at Stanford? Yeah, it's actually reasonably simple. So we start with, like any institutional investor, we start with the goals we have for the endowment. And if you're a perpetual educational endowment like Stanford, you generally have two primary goals. The first is you want your endowment to provide a material amount of support for the current generations of students and scholars.

So this year we're distributing about two, billion dollars from the Stanford endowment to support the current operating budget of Stanford and that support is one of the reasons that Stanford is one of the least expensive private four-year colleges to attend in the country it's one of the reasons that nearly 90% of undergrads at Stanford graduate with no student debt and it's one of the reasons that you know that that we can offer need blind admission to undergraduate students and And research is supported with that $2 billion, of course.

So that's goal number one. You want to be impactful to the current students and scholars at your institution. The second goal, and that's that $2 million is about 5% of the endowment. The second goal is we want to be at least as supportive for all future generations of students and scholars. And there's a little tension that comes when you have both of these goals. One pushes you towards an investment program that has a lot of stability, and the other pushes you towards wanting to preserve purchasing power so that you can spend 5% a year and also offset the erosion that accompanies inflation. And the inflation that we care about at Stanford is higher education price inflation, which tends to run a little bit higher than consumer price inflation. So if you're distributing 5% of your endowment every year and higher education price inflation is three or four percent, you know, you need an expected return in your investment program of around 9%. So the goals we have for the endowment suggest an investment strategy that has an equity bias because we need a pretty high return. So roughly 70% of the portfolio is invested in equities here of one type or another. And 30% is in things that are less risky than equity.

And when we put all that together, we think we have a chance of being able over the very long run to provide a material level of support for the students and scholars at Stanford and still preserve purchasing power. And that's really that that's the crux of the investment strategy. What kind of changes did you make to the Stanford portfolio when he arrived? Yeah, so I arrived in 2015. A portfolio was about $20 billion. dollars. And one of the things that I noticed was we were dramatically overly diversified, not at the level of asset allocation. That was fine. You want to be diversified in terms of your asset allocation. But within each asset class, we had far too many investments. So for us,

that means we had far too many external partners. We had 300 external partners helping us manage a $20 billion portfolio. I remember real estate was 8% of the portfolio in 2015. And we had 53 external partners helping us manage 8% of the portfolio. So, you know, dramatically overly diversified. And the reason for that was the culture of the office here and the decision-making model that the office had been following, fostered that type of very diversified kind of low-conviction investment. So one of the things that, and it had done okay, but there was an opportunity to make

it better. And the way that I thought we would make it better is we needed to have a much higher condition, more concentrated portfolio with fewer partners that were more carefully selected and in really critically important, Nikolai, with whom we could develop a strong, trustful, knowledgeable relationship. Now, what makes a good investor? So when you have these young people in the seminar, how do you identify good potential investors? So a lot of intellectual curiosity, always questioning the ability to kind of combine quantitative and qualitative data thoughtfully.

And the type of investment that we do, both aspects are really important. And so we tend to find that the best endowment style investors kind of spike enough in both areas that they're quite competent in both areas. but then the real skill is how you bring them together and to form investment judgments. And some people are just kind of, I would say, you can teach a lot of that, but there's also some of it that is sort of seems to be innate in somebody. The way that people tend to just sort of naturally or natively process information, some people just has a very facile way of bringing together all of that different type of data,

prioritizing it correctly, synthesizing it in a way that really makes sense, and they make the best investors. Do you find that really clever people are able to take risks? I find it's a spectrum, and I think I've sort of, I'm not sure I'm right about this, but I've kind of come to have a theory that we all sort of, because of our temperament and our experience, we all fall on a different part of the risk return continuum. Some of us are naturally happy and comfortable taking a lot of risk, and some of us are naturally very risk-averse. And I think it's okay to be either, you can't have a long-term investment portfolio as an endowment that's too risk-averse because you'll fail to preserve purchasing power.

So you need to take enough risk in your portfolio, but on your team, I think it's okay to have a variety of people that are on that continuum at different places. the important thing is that they're all sort of on the efficient frontier, so that they're, for whatever amount of risk they're taking, they're getting the highest level of return possible. So that efficient way of thinking about risk is probably more important. And it's actually helpful to have people on your team that are on different parts of that spectrum. Changing tax a bit, you are very passionate about research universities' role in innovation.

And, of course, you're sitting in the kind of main hub of it all. So explain this model, please. Sure. So it's a model that the United States really has followed since the end of World War II. And it's reasonably straightforward. The United States federal government receives taxpayer funds, and they have priorities for national innovation. Areas of research that are strategic priorities for the United States. So what they do, the taxpayer funds, is they put that money out for competitive bids from research universities.

Stanford obviously included, but dozens of others. And we compete with our peers, with our tremendous and excellent peers, for that research money on any particular thing, a health care issue or research into cancer or research into some engineering problem. And the person who puts the most competitive proposal in front of the federal government wins that contract. We do the research. That's usually basic research that we're doing, basic science. And then when we've researched it, we publish it. And that publication is for anybody.

I mean, it's completely wide open for people to see the results of their taxpayer money at work. And then private companies come, take the results of that basic research. and build interesting technologies on top of it and build interesting companies that provide valuable goods and services to U.S. customers and global customers. And so that innovation model really, I think, has led the world in innovation for, you know, for 80 years. It's been a very, very successful model. And it has accrued, in my opinion, at least to the benefit of the United States and the world. And so I am passionate about the role of research, universities and it's a good model and it's worked extremely well.

How has that discipline from ballet helped you in life? I think it's helped me a lot. And I don't think it's anything unique to ballet. I think any time you want to succeed at something that, you know, that's very challenging in any walk of life, it requires a lot of discipline. And that's true for investment management. I do think one of the I've reflected on this. And I think one of the things that ballet and investment, long-term investment management have in common is you're always working for something that's years away. You know, every day you walk into the ballet studio, you're working on your technique.

It takes years and years and years before it pays off, you know. And when you're investing endowment capital for Stanford, you walk in every day, you're doing any work, and it's going to pay off five or ten years later. That's how long it takes in this type of investment. we generally do. And so that kind of willingness to do the work and stay focused, even though the kind of the payoff is so far in the future, that feels very similar to me in both professions.