University of Louisville Foundation writes down school's endowment by $38 million
Most of the money former U of L President James Ramsey’s administration withdrew from the endowment won't be repaid.
LOUISVILLE, Ky. (WDRB) -- The University of Louisville Foundation has lowered the value of the school’s endowment by $38 million – an acknowledgment that most of the money former U of L President James Ramsey’s administration withdrew from the fund won’t be repaid.
The endowment is a $760 million investment fund that pays for scholarships, professor salaries and other academic needs at the university.
But, as WDRB revealed last year, the foundation routinely tapped the endowment as a source of cash to pay for local real estate projects and operating expenses – including extra salaries paid to administrators such as the former university provost and chief of staff and the foundation’s former chief financial officer.
University Holdings Inc., the foundation subsidiary that borrowed the money and paid extra salaries and car allowances, racked up a $72 million debt to the endowment between 2008 and 2015.
In June, a forensic investigation of the foundation by Chicago firm Alvarez & Marsal confirmed WDRB’s reporting, calling the loans “unrecorded endowment losses” and blaming the foundation’s board of directors for failing to oversee the borrowing, which far exceeded limits the board had set.
Ramsey’s administration accounted for the loans in such a way that, even as University Holdings withdrew more cash, the value of the endowment didn’t go down. The loans were considered investments earning guaranteed interest, on the assumption the money would be repaid and then some.
But after a review by its new board of directors, the foundation decided to write down $38 million of the endowment debt while committing to repay to the other $34 million over 15 to 20 years, said Keith Sherman, the foundation’s interim executive director.
The write down reduces the value of the endowment by about 5 percent.
The change, which foundation chairwoman Diane Medley mentioned during a university trustees meeting Friday, became effective at the end of the foundation’s fiscal year on June 30.
Sherman said the adjustment is part of the foundation’s efforts over the last nine months to restore confidence in its stewardship of funds so that major donors resume contributing and help rebuild the endowment, which the foundation manages on behalf of U of L.
The foundation already slashed endowment funds flowing to the university by about $15 million to $30 million a year so that more money can stay invested in financial markets.
“We have taken steps in a lot of areas to change the way we do business,” Sherman said Tuesday. “…We can’t remedy everything that took place in the past, but what we can do is ensure that, going forward, we adhere to best practices with full transparency and accountability.”
Ramsey, who resigned under pressure from his dual roles as president of U of L and the foundation in 2016, did not respond to a request for comment sent to his attorney, Steve Pence.
In addition to the loans, the Alvarez & Marsal investigation concluded that Ramsey’s administration depleted the endowment by at least $42 million to fund “unbudgeted or excessive” expenses, including $22 million in deferred compensation paid to about a dozen administrators.
In a series of closed-door meetings over the last three months, the university board of trustees has been considering whether to sue Ramsey, former foundation board members or the foundation itself for breaches of fiduciary duty, among other potential claims.
An attorney working for the trustees has said the foundation lost $40 million to $100 million through the mismanagement detailed in the Alvarez & Marsal report.
Last week, the trustees voted to approve a vaguely worded action authorizing its attorneys to talk to the foundation about reaching a “resolution.” Trustees Chairman David Grissom declined multiple requests to explain the action.
Loaned funds went to real estate, operations, extra pay
The foundation used the $72 million borrowed from the endowment for a variety of expenses and investments, according to the Alvarez & Marsal forensic investigation.
About $23 million went into early development of the ShelbyHurst campus where the foundation, with private developer NTS, built three pristine office buildings rented to tenants. Another $20 million was used to buy the vacant land where the foundation plans a research park behind the Speed School of Engineering.
MetaCyte, the foundation’s defunct start-up business incubator, and Nucleus, its life sciences and economic development affiliate, each used about $8 million to fund their daily operations. U of L’s James Graham Brown Cancer Center got $11 million to help with expenses.
Another $1.7 million in borrowed endowment money was used to pay “select” foundation and university employees through University Holdings, the foundation subsidiary, according to the Alvarez & Marsal investigation.
From 2010 to 2016, University Holdings paid Kathleen Smith, Ramsey’s former chief of staff, $295,980, according to the report. University Holdings also paid former Provost Shirley Willihnganz $111,018 and former foundation chief financial officer Jason Tomlinson $184,097 during that period.
Willihnganz stepped down as provost in 2015. Smith retired from the university in 2016 and was fired by the foundation in June. The foundation fired Tomlinson in July.
University Holdings also paid four lower-ranking employees in Ramsey’s office amounts ranging from $9,360 to $19,381 a year in additional compensation during the period, as WDRB reported last year and the Alvarez & Marsal investigation confirmed.