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U of L Foundation Gets 'Negative' Finance Rating

University of Louisville
J. Tyler Franklin
University of Louisville

The University of Louisville Foundation, whose investment track record the last five years is one of the worst among Kentucky’s public colleges, has been slapped with a negative outlook by one of the nation’s major debt rating services.

The outlook downgrade came this week from Moody’s Investors Service. It stemmed in part from low investment returns that were the subject of a recent report by the Kentucky Center for Investigative Reporting. Out of 11 Kentucky college endowments compared, U of L’s endowment ranked ninth in average annual return over the last five calendar years. (Read "Big Endowments And Underwhelming Returns At Kentucky Universities")

“The foundation’s operations are adversely pressured by the university’s need for greater financial support, coupled with recent weak endowment returns including in fiscal 2015,” the Moody’s report states.

Moody’s noted that the nonprofit foundation’s endowment pool closed out its latest fiscal year, which ended last June 30, with an investment return of negative 0.5 percent. That year’s median return for college endowments surveyed by the National Association of College and University Business Officers, Moody’s said, was 2.4 percent.

The Moody’s downgrade, which was first reported by the Courier-Journal, comes amid higher education cuts and widespread scrutiny of the university’s finances and the compensation of President James Ramsey, who also heads the foundation.

The U of L Foundation endowment has 46 percent of its assets in so-called “alternative” investments, such as hedge funds and private equity funds, that spread risk away from stocks and bonds. Alternatives, however, have made substantially less money for college endowments than U.S. stocks. The Kentucky colleges with the best five-year returns as of Dec. 31 had almost no exposure to alternatives.

Jason Tomlinson, the U of L Foundation’s chief financial officer, defended the endowment’s long-term investment record. Although it has underperformed the stock market in the past five years, he said it comes out a winner over 20.

But the diversification into alternatives hasn’t helped the endowment during the past year of upheaval in the stock market. Through the first seven months of the 2015-16 fiscal year, as of Jan. 31, the U of L endowment lost 8.5 percent of its value -- $66.2 million -- and slumped to $646 million. It was hurt by investments in emerging markets and energy and shook up its hedge fund holdings.

The Moody’s report said the U of L Foundation’s financial reserves have been “stagnant” for five years and most recently suffered a 13 percent, one-year decline.

“A combination of the use of cash for strategic investments, weak investment returns and continued investment in real estate ventures have caused the foundation’s financial resource growth to lag peers,” the report stated. “Although the financial cushion to operating expenses is sound, this figure is substantially weaker than (fiscal) 2011.”

U of L Foundation Board Chairman Robert Hughes could not be reached for comment Thursday.

On a separate subject, Hughes and six other foundation directors wrote an open letter, dated Tuesday, defending the performance of U of L President James Ramsey and his compensation.

In the past year, Ramsey’s leadership has been criticized, his compensation questioned and his standing placed in doubt by a threatened no-confidence vote by the U of L Board of Trustees. Trustees have also complained about not being notified of foundation decisions.

In its “Dear Friends” letter, the seven foundation directors wrote that $2.8 million entered as Ramsey’s compensation in its 2014 federal tax return was “not reflective of a single year of compensation,” but included a “retention incentive” that became payable to Ramsey over a longer time period.

“Over the years, professional recruiters came after him (some sent private jets with their trustees) because they saw the same things in the president that we did -- a leader who gets results in a rapidly changing environment for higher education,” the letter states. “We devised a strategy to retain Dr. Ramsey and key members of his executive team through 2012. Our efforts were successful, and Jim and his leadership team continue to achieve results for the university today.”

Along with Hughes, the foundation directors who signed the letter were Ulysses Bridgeman, Frank Minnifield, Frank Weisberg, Joyce Hagen, William Selvidge and Salem George.

Reporter James McNair can be reached at jmcnair@kycir.org and (502) 814.6543.

This story was reported by WFPL’s Kentucky Center for Investigative Reporting

James McNair is a veteran investigative reporter who specializes in business and finance issues.

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