President James Ramsey at the March board meeting of the University of Louisville Foundation
President James Ramsey at the March board meeting of the University of Louisville Foundation | Photo by Joe Sonka

The University of Louisville Foundation’s endowment had an 8.5 percent loss in investment returns over the first seven months of the current fiscal year, with the market value of the endowment’s net assets plunging by 17 percent to $646 million.

As Bloomberg reported this month, U of L is not alone among universities that have seen their endowment’s value shrink in the first half of this fiscal year, though its steep drop caused the Foundation to terminate six of its poorly performing hedge fund managers and pull money away from two hedge funds to go toward the university’s operating budget.

Since hitting a high of $824 million at the end of the fiscal year on June 30, 2014, the U of L Foundation’s endowment net assets have steadily fallen, with investment returns performing below the average of other universities. The endowment only gained less than $1 million in investment returns during the 2015 fiscal year, less than the 2.8 percent average rate of return for other university endowments of its size that year. Factored along with more than $60 million spent towards university operations and asset reallocations, the endowment’s net assets fell by 5 percent.

Along with a challenging market since last summer that has eaten away at university endowments all over the country – such as Indiana University, with a 6 percent loss to its investment returns by the end of December – by the end of January, the value of U of L’s endowment reached its lowest point since it began rising out of the Great Recession in the summer of 2009. Along with an 8.5 percent loss in investment returns in the first seven months of the current fiscal year — amounting to over $66 million — $78 million of the Foundation’s endowment net assets went to university operations or were reallocated to other investments, which is roughly 10 percent of the endowment’s value from last summer.

At its board meeting earlier this month, the Foundation’s investment consultant said they are seeking to invest more in private equity, and though the endowment was hurt by poorly performing investments in emerging markets and its energy portfolio, the Foundation expects both to soon recover along with a rise in oil prices.

Dr. James Ramsey – the embattled president of both the University of Louisville and its nonprofit Foundation – has consistently touted the large increase in the school’s endowment since he took over in 2002. Following an aborted attempt at a no-confidence vote in his leadership by members of the U of L Board of Trustees on March 1, Ramsey made another familiar pitch about his success to the Foundation’s board the following week. After stating that the growing Foundation assets are now pitching in more money to U of L’s operating budget than state appropriations following a decade of steep cuts in Frankfort, Ramsey compared their academic metrics to the University of Kentucky, with slides showing U of L’s graduation rates, degrees awarded and research expenditures increasing at a higher rate over the past decade.

A review of endowment numbers provided by both universities shows that while both were on a similar path coming out of the Great Recession, the market value of UK’s net assets has shown significantly more growth since that time.

The market value of the U of L Foundation’s endowment grew by 11 percent in the 2014 fiscal year, compared to a nearly 14 percent increase by that of UK. The following year, U of L decreased by 5 percent, whereas UK finished with a slight gain. In the first seven months of the current fiscal year, U of L’s endowment decreased 17 percent, while UK’s has fallen by 6.8 percent. From the end of the 2013 fiscal year to January, this amounts to a 6.6 percent increase for UK and nearly a 13 percent decrease for U of L.

Figures provided by the University of Louisville Foundation and the University of Kentucky
Figures provided by the University of Louisville Foundation and the University of Kentucky

From the end of the 2005 fiscal year to the end of this January, the market value of the UK endowment’s net assets has nearly doubled, while that of the U of L Foundation has increased by 7 percent.

Susan Krass, the treasurer of UK — which manages the university’s endowment, unlike U of L’s, which is run by its nonprofit Foundation — noted to Insider Louisville that its spending policy also plays a role in these figures. While the average university of their size spends just over 4 percent of its endowment on school operations each year, UK’s policy limits how much they can spend, and they have spent well under 4 percent in each of the last two years.

Jason Tomlinson, the CFO for the U of L Foundation, tells IL that they have a 5.5 percent spending allocation policy, which is not atypical. Though the Foundation allocated 7 percent of its endowment’s value the past two years and 10 percent so far in the 2016 fiscal year, he added that this appears higher due to the university spending funds that were allocated but not spent in previous years, as well as the assets that were moved from one investment to another.

Asked about the drop in endowment value after the March board meeting of the U of L Foundation, Ramsey said they’ve been using Foundation assets to pay the bills and replace declining state appropriations, and expect increased donations and an improvement in the market to make up for what they’ve recently lost.

“Look at the pension programs we have in the state,” said Ramsey. “They’ve taken a beating because of the market. So the market is the market. You do the best you can with it. I think we have a great investment strategies, risk management strategies, hedging strategies and so forth. And I think when you look over the long term, our rate (of return) is one of the top in the country.”

*This story has been updated to clarify the U of L Foundation’s spending policy allocations with comments from Tomlinson, who also noted that the previous net assets figure we used for FY 2013 was higher than its actual amount, as it included funds held by others and the university trust. The correct figure for FY 2013 is now reflected in the graph above and the smaller 13 percent decrease from then to the end of this January, which was previously reported as an 18 percent decrease.

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Joe Sonka
Joe Sonka is a staff writer at Insider Louisville focusing on government, politics, education and public safety. He is a former news editor and staff writer at LEO Weekly and has also freelanced for The Nation and ThinkProgress. He has won first place awards from the Louisville Metro chapter of the Society of Professional Journalists in the categories of Health Reporting, Enterprise Reporting, Government/Politics, Minority/Women’s Affairs Reporting, Continuing Coverage and Best Blog. Email him at [email protected]