Endowments at UofL

Anyone at the University of Louisville who relies upon endowment funding received some very bad news earlier this month. University endowments declined about 17% in 2015.

While this is very bad news in the short term, it is actually part of a larger long-term problem.

At their peak, UofL endowments were worth $824 million on June 30, 2014. However, in a period covering more than a decade, University endowments are up only about 7% in total. This is not as good as the performance of in-state rival University of Kentucky, which has seen its endowments nearly double in that period. InsiderLouisville, which reported these facts, included this long-term chart in a March 2016 story:



Given the recent hullabaloo over President Jim Ramsey's tenure at the university, I decided to investigate a bit further (especially given other recent controversies). After all, Ramsey is also the President of the University of Louisville Foundation, which is responsible for endowments. The Foundation outsources much of its money management, but is ultimately responsible for the outcomes. As its own webpage proclaims, "The Foundation is an independent 501(c)(3) not for profit corporation that holds, invests and designates funds of the University." Moreover:

The students, academic staff, schools, colleges and libraries of the University rely heavily on support generated from the endowments of the Foundation. These funds are invested and managed by the Foundation in support of the university’s education, research and service goals and used for scholarships, endowments, research chairs, grants and other academic initiatives. Gifts to the University are managed according to the wishes of the donor and the appropriate University departments. Gifts without restrictions are managed at the discretion of the Foundation Board upon recommendation of the president. 

Additionally,, the President often references his fundraising as a major success story at the University. In his recent public presentations (I saw these slides at a meeting with Arts and Sciences faculty and staff), the President notes that University of Louisville Foundation "private support" has grown from $35 million in FY 2002-03 to $154.7 million in FY 2015-16. 

Ramsey was hired at UofL on August 1, 2002, so this is essentially his tenure at UofL.

What about endowments during his entire tenure?

The endowment was worth $550 million on December 31, 2001, as revealed at the March 2002 Foundation Finance Committee meeting. Apparently, some UofL sources recently claimed that the value was only $221 million in 2002. At least one media outlet reported this number without checking the primary sources as I have here.

By the way, the endowment had grown an average of 14.7% annually for 5 years prior to Ramsey’s August 1, 2002 start date. This was reported to the Board of Trustees at their March 2002 meeting. Again, I'm linking to the primary sources from the University.

The endowment was worth $646 million on January 31, 2016. That means that during Ramsey's tenure as President of the University and the Foundation, the endowment has grown a total of $96 million, or about 17%. Annualized, the rate is about 1.25%.

Obviously, the growth would be a lot different if the baseline number was $221 million.

In any event, by comparison, the Dow Jones Industrial Average (DJIA) closed at 10021.57 on December 31, 2001. On December 31, 2015, the DJIA closed at 17,425.03, which means that it increased in value by about 73% during that time, or about 5.2% annually.

Readers with long memories may recall that fall 2001 was a tough time for the stock market. After the 9/11 terrorist attacks stock prices tumbled.

Indeed, because the value seemed low versus historic averages, my wife and I decided to invest about $5000 in the stock market that fall. However, we didn't really know anything and we didn't want to spend lots of money on a broker. We thought the future would involve more technology and knew that the NASDAQ hosted most tech stocks. Thus, we bought 150 shares of QQQ, which is an "exchange-traded fund (ETF) that gives investors and traders a snapshot of how some of the largest technology companies are trading stocks. The QQQ is heavily weighted toward large technology companies trading on the Nasdaq stock market, with over 50% allocated in the information technology sector."

We purchased 100 shares in October 2001 and 50 more a few months later in early 2002 (it was actually called QQQQ until 2011). The price was around $35 per share. For apples-to-apples purposes, the QQQ closed at $38.91 on December 31, 2001. On December 31, 2015, QQQ closed at 111.86. That means this NASDAQ-linked fund has almost tripled in value since the date we purchased it.

My only regret in hindsight is that we didn't invest more in QQQ.

Overall, both the Dow Jones Industrial Average and NASDAQ index funds have offered a lot of value in average returns during President Jim Ramsey's tenure at UofL. Yet, the Unviersity's money gurus have managed to dramatically underperform the market.

How does this align with Ramsey's claimed fundraising success? I offer three explanations.

First, it appears the baseline start number has been....er, mis-remembered.

Second, some of the fundraising has undoubtedly reflected one-time gifts that have been spent on specific projects. These are not endowed funds and are quite valuable to the University.

Third, as media outlets have reported, in recent down years, the University has been spending endowment assets to pay bills. "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."

Let's hope this plan works out because the investment results have certainly not been great during Ramsey's tenure.


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It's Good to Be the King

It's also good to be President of University of Louisville.  Heck, to prove this, the University even commissioned a study by a consultant:

In a report that cost the university about $23,000, Verisight Inc. of Chicago found that [President James] Ramsey’s total annual of compensation of $1.1 million is 60 to 80 percent above the median pay for presidents at similar universities.

Those numbers don't include deferred compensation and other benefits.

In any case, despite this high level of compensation, I should say that it used to be good to be President of University of Louisville. However, recent events have muddied the waters tremendously. Lately, President James Ramsey has been under fire by some elements of the faculty -- and by a number of Board of Trustees members. My College, Arts & Sciences, overwhelmingly supported a "no confidence" vote in a survey of faculty.

Why all the recent troubles?

As noted, President Ramsey's salary is very high compared to other University presidents, while faculty and staff salaries are relatively low. The salary problem, by the way, is particularly acute in Arts and Sciences. Some members of the community are angry about the decision to withhold the men's basketball team from this year's NCAA tournament. A whistleblower has alleged serious executive misconduct. The medical school apparently had some recent trouble with accreditation. The array of concerns is large and diverse and I won't discuss them thoroughly here.

Let's focus on one rarely discussed issue.

Some members of the University community are especially unhappy about the business model UofL has adopted under Ramsey's leadership. There are a number of implications of this, but this post will focus on merely one: consider the University's relationship with Texas Roadhouse, a local company (despite the name):

Texas Roadhouse and U of L have enjoyed a close relationship in the past, most notably in 2010, when the university opened its Texas Roadhouse Student Center at the College of Business. This 1,840-square-foot lounge is designed to look just like a Texas Roadhouse restaurant, complete with signage and branding, though there’s no kitchen. It cost a reported $200,000 to build.

Why should this matter? Well, President Ramsey is a highly-compensated member of the Texas Roadhouse Board -- paid primarily in valuable shares of common stock:

On Jan. 7, the University of Louisville president received 8,500 shares of stock from Texas Roadhouse, where he serves on the board of directors. The acquisition brings his current reported total up to 97,418 shares. The next day, he received an additional 25,500 restricted stock units from the steak giant, which he can collect over the next three years but doesn’t own yet.

Texas Roadhouse stock shares closed Jan. 15 at $33.67, meaning Ramsey’s 97,418 shares were worth $3.28 million at that time.

The newest 25,500 shares are restricted, meaning they are incentives for him to stay on at the company as a director. The shares of the stock were broken into three separate tranches of 8,500 shares of restricted common stock. They were granted as part of the firm’s 2013 Long-term Incentive Plan.

The stock price is now $44 per share, meaning that merely the 34,000 shares of stock Ramsey received or was promised in January 2015 are currently worth almost $1.5 million. Then again, he must continue to serve on the Board through January 8, 2018, to receive the final 17,000 shares. Half (8500 shared) will be awarded January 2017 and the other half on that January day in 2018.

Ramsey's full SEC disclosures as a Board member can be found here -- and lots of other places on the web. These are required by federal law under "insider trading" regulations.

Interestingly, however, for many years President Ramsey apparently did not disclose these ties as part of the ordinary "conflict of interest" form that all UofL faculty must file.

This story summarizes President Ramsey's legitimacy crisis among many members of the faculty -- extravagant compensation, use of position and privilege for personal gain, double standards vis-a-vis the rest of the University community, and at least a whiff of unethical behavior.


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Wonder why they'd say that?

New York Yankee third baseman Alex Rodriguez, August 2013:

“The last seven months have been a nightmare. Probably the worst time of my life, for sure....I have to defend myself. If I don’t defend myself, no one else will.”

University of Louisville President James Ramsey, May 2015:

"All I have is my integrity … and I can't let people attack my credibility," Ramsey said bitterly at a special meeting of the board that he called. "Nobody stood up for me so I am standing up for myself."

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Spending Reallocations at University of Louisville

A few days ago,  University of Louisville President James Ramsey sent the following message to the campus community:

It was another disappointing legislative session given the cut in our recurring state appropriation, but we appreciate the funding in FY15 for the new classroom building for the Belknap Campus.

You are aware that we as a campus community have been discussing the 2014-15 University of Louisville operating budget for several months.  I appreciate deeply Susan Ingram Howarth’s efforts on behalf of our campus.  Susan has had meetings with Faculty Senate, Staff Senate, Student Government, deans, vice presidents and other campus groups.  Susan conducted several forums, particularly on proposed tuition increases.  A week ago I conducted a campus-wide budget forum.

Any way we slice it, it’s another bad budget – a $2.2 million cut in state appropriation; the need to again increase tuition; and lack of funds that we need for critical investment in faculty, staff and students.

After a month of deliberations and feedback we will recommend to the Board of Trustees of the University of Louisville at its May 8th meeting a budget that provides a 2% salary increase for both faculty and staff; a 5% tuition  increase for in-state undergraduates (other proposed tuition increases are attached); and a .65 percent unit budget cut.  We worked hard to not pass on the entire state budget cut to the units and understand the pressure the unit budget cut places on the campus.

I have appreciated your input and, more importantly, your efforts to keep the University of Louisville moving forward in these continued difficult fiscal times. 

Jim Ramsey

I attended a briefing offered by Susan Howarth some months ago. At the time, the information I received showed that a 5% tuition increase would generate $11.1 million. Financial aid increases with tuition, so some of this is returned (reallocated) to students. Unfortunately, the spreadsheet I was provided only lists new spending like that in the catch-all category "strategic initiatives." Salary increases are in that pool too, as are health care cost increases.

Still, because different tuition and salary options were presented, I can make educated guesses about how this breaks down. It appears that each 1% increase in salary costs just over $2.4 million. So a 2% increase is roughly $4.9 million in new expenses.

It appears the new financial aid amounts to roughly $500,000 per 1% increase in tuition. Thus, a 5% increase in tuition costs $2.5 million in new financial aid.

Total those together and that adds up to about $7.5 million of new spending from the $11.1 million in tuition revenue. 

The 0.65% unit cut is out of a 1.5% overall cut in state funding to the University of Louisville. Put differently, units are being asked to finance 43.3% of the total cut even as their personnel will enjoy a 2% salary increase. They'll need to find $950,000 in cuts to earn $4.9 million in salary. 

If the salary increase was only about 1.63%, no new spending cuts would be needed.

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I need a new agent

Consider this a very special edition of UofL Today.

Lexington Herald-Leader, October 17, 2009:

The University of Louisville Foundation paid U of L President James R. Ramsey $1.9 million in 2007 to compensate him for state retirement benefits he forfeited, according to the foundation's most recent filing with the IRS.

Ramsey, who became president of Kentucky's second largest public university in 2002, had spent 17 years working for state government, including serving as state budget director under former Gov. Paul Patton between 1999 and 2002. While working for the state, he accrued time in the Kentucky Retirement System.

But because he left the state job without the necessary number of years of service to be fully vested, the U of L trustees inserted a provision in Ramsey's contract calling for him to be compensated for the retirement benefits he left on the table when he took the U of L job.

The foundation, which manages the university's private donations and endowment funds, paid Ramsey a $1,935,299 lump sum in 2007, the year he would have been eligible to retire with full state benefits, said Robert Gunnell, senior partner with Peritus Public Relations who serves as spokesman for the U of L Foundation.

"That was the amount that an actuarial firm calculated to make President Ramsey whole in his retirement account," Gunnell said.

Until today, most faculty and staff that I know hadn't heard about this.


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In local news....

1. It's hot as hell here. According to WHAS-11 chief meterologist Ken Schulz, Louisville has had 27 days of 90 degrees or above this summer. Ugh.

2. So, what to do? Maybe...drink up! Perhaps to provide citizens with something to do over the weekend, the City Council of Louisville just voted (15-7) to allow Sunday sales of liquor.

The new law allows package stores as well as drugstores and other retailers to sell liquor or wine from 1 to 9 p.m. on Sundays.

This weekend will feature the first Sunday of liquor sales in this city since before Prohibition!

3. Who will be drinking? I don't know if he's a teetotaler or not, but one person that might be in a celebratory mood is the President of the University of Louisville, James Ramsey. He just got a big raise:

University of Louisville President James Ramsey received a glowing evaluation, a 5 percent raise and a potential bonus of nearly $98,000 yesterday from the board of trustees.

The package would bring Ramsey's compensation to just over $500,000 for the year if he gets the bonus.

One reason I find this interesting: According to the August 1 Daily Crimson, Harvard President Larry "Summers made $522,714 in salary in the fiscal year ended June 30." One member of Harvard's board thought this sum was outrageous, especially given the year Summers just had, and resigned in protest.

If you do the math, it works out that Ramsey's pay this coming year could be about 96% of Summers's annual pay.

That's good work if you can get it.