FOUNDA TION FINANCE COMMITTEE September 23, 2016 ULF Performance - PowerPoint PPT Presentation

FOUNDA TION FINANCE COMMITTEE September 23, 2016

ULF Performance vs. Peers and Benchmarks 2

ULF Performance vs. Selected Benchmarks 3

Erroneous Comparisons • UK – 46% increase between 2006 and 2015 • UK moved $150M of hospital funds to their endowment in 2006 which accounts for a great deal of that increase. • Additionally UK reports two numbers to their Investment Committee FY2016 • • Total Assets $1.221B • Net Assets $1.078B • Spalding – 141% which is a great job • They’ve grown from $6.9M to $17.9M Utilizes a stock and bond portfolio • 4

Comparison to 60/40 Equities/Bonds 5

Erroneous Comparisons • IU – Actual number is 55% (not 96%) • Apples to Oranges • IU 2015 Market Value - $1.974B • 51% alternatives and private equities • Or $1.0B – larger than our endowment • We have earned 20.6% on private equities since inception • New funds added to the endowment • FY 2015 - $86.3M • FY 2014 - $95.3M 6

Endowment Growth Three Factors: • New cash gifts to the endowment • Spending • Investment returns 7

Endowment Contributions Over Time 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 ‐ 8

Endowed vs. Current Use Gifts 71% of philanthropy during the campaign was for current use, while 29% was for endowments. Current Use $736,334,189 Endowed $302,548,037 9

Spending Policy – ULF Board Approval ULF Board Meeting Date Action Taken June 2016 Spending Policy Approved for FY 2017 March 2015 Spending Policy Approved for FY 2016 April 2014 Spending Policy Approved for FY 2015 December 2013 Spending Policy Approved FY 2014 June 2012 Spending Policy Approved for FY 2013 August 2011 Spending Policy Approved for FY 2012 March 2010 Spending Policy Approved FY 2011 10

University Spending Effective Spend Rate 9.0% 7.80% 7.75% 8.0% 6.90% 6.84% 6.77% 7.0% 6.53% 6.0% 5.50% 5.50% 6.43% 5.0% 5.50% 5.50% 4.0% 3.0% 2.0% 1.0% 0.0% 11

State-Mandated Budget Reductions Cumulative FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Total Recurring 2002 ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($48.0 ) Non‐Recurring FY 2002 ($1.3) ($1.3 ) Recurring 2003 ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($45.0 ) Non‐Recurring FY 2003 ($4.4) ($4.4 ) Recurring 2004 1 ($3.1) ($3.1) ($6.2 ) Non‐Recurring FY 2004 ($7.9) ($7.9 ) Non‐Recurring 2008 ($5.1) ($5.1 ) Recurring 2009 ($10.0) ($10.0) ($10.0) ($10.0) ($10.0) ($10.0) ($10.0) ($10.0) ($10.0) ($90.0 ) Non‐Recurring 2009 ($3.2) ($3.2 ) Recurring 2010 ($4.7) ($4.7) ($4.7) ($4.7) ($4.7) ($4.7) ($4.7) ($4.7) ($37.6 ) Recurring 2011 ($2.4) ($2.4) ($2.4) ($2.4) ($2.4) ($2.4) ($2.4) ($16.8 ) Recurring 2012 ($1.7) ($1.7) ($1.7) ($1.7) ($1.7) ($1.7) ($10.2 ) Recurring 2013 ($9.7) ($9.7) ($9.7) ($9.7) ($9.7) ($48.3 ) Mid‐Year State Budget Revisions Base Budget Cuts in the Enacted Budget Bill Recurring 2015 ($2.1) ($2.1) ($2.1) ($6.4 ) 1 FY 2004 was a recurring budget cut that ended in FY 2004‐05. Non‐Recurring 2016 2 ($2.8) ($2.8 2 FY 2016 is pending legal decision. ) Recurring 2017 ($6.3) ($6.3 ) ($4.3) ($10.4) ($17.0) ($9.1) ($6.0) ($6.0) ($11.1) ($19.2) ($20.7) ($23.1) ($24.8) ($34.4) ($34.4) ($36.6) ($39.3) ($42.8) ($339.2 ) 12

In FY 2010 the unspent carryover balance was $67.7M • What is unspent carryover? • Fancy budget term for the ‘rainy day funds’ of the University academic departments • Comprised of unused gifts and unused endowment spending allocations from previous years. • How do you spend over your spending allocation? • When the University academic departments spend from both their annual allocation and their rainy day funds then the amount spent exceeds 5.5%. 13

Total Endowment Spending per Fiscal Year 2011-2016 45,000,000 $40.261M 40,000,000 $38.874M $33.632M 35,000,000 $31.907M $35.517M $30.070M 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 ‐ 5.5% Spending Carryover Spending 14

What If? It would have made no difference if the 5.5% had been lowered! Why do I say that? Actual ‐ 5.5% Estimated ‐ 4.2% Difference Spending Between 2010 ‐ 2016 347,543,270 288,735,484 Carryover 0 67,692,630 347,543,270 356,428,114 8,884,844 Mounting criticism of schools who maintain spending allocations are too low. 15

How Are the Investments Doing? • College Endowments Seen Posting Worst Returns Since 2009 – Bloomberg August 2, 2016 • University of North Carolina’s Endowment Posts 2% Decline – Bloomberg August 16, 2016 • Endowment Returns Go Negative in 2016 – FUNDfire 9/22/16 • Projected average -1.5% University of California ($9.3B) -3.4% • Ohio State University -3.4% University of Florida -3.2% • University of Virginia -1.5% • Endowments cannot invest with a 1- to 2-year time frame in mind – it would be financially irresponsible 16

Why Not? 17

Our Investments Are Doing What They Are Supposed to Do • Up $14.7M in July • Up $18.9M in August • Over the past 20 years, the Foundation’s investment return on endowed assets has met or exceeded the CambridgeAssociates College and University median 16 times. 18

What Is the Real Story? • The University of Louisville has spent $574,970,192.93 of Foundation allocated dollars between FY 2003 and 8/31/16. Beginning Market Value (2003) $478,917,000.00 Endowment Gifts $248,917,484.53 Total Spending ($574,970,192.93) Investment Return $531,764,019.41 Ending Market Value (8/31/16) $684,628,311.01 19

Real Estate Return on Cash 35% 30% 28.52% 26.57% 30.19% 28.71% 27.63% 25% 24.39% 25.47% 23.29% 20% 15% 16.03% 15.56% 10% 5% 0% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20

The Other Half of the Story Growth in Equity $25,000,000 22,809,611 20,944,597 23,803,934 19,233,078 21,857,084 $20,000,000 17,662,420 20,070,465 16,926,253 18,430,890 $15,000,000 $10,000,000 10,410,173 $5,000,000 $0 21

Indirect Benefits • Chevron – Student Parking (900+ spaces) • Martco and Old World Pasta – ground for Dr. Mark & Cindy Lynn Stadium • Equipment Depot – ULAA parking • President‘s Home – Utilized by the President‘s Office and Advancement • Southern Kitchens – Houses Physical Plant and University Archives • KY Trailer Property – Support Engineering • Tafel Propety – Home to FirstBuild, Engineering Garage,AMCC, and various University functions • K&I Lumber Property – Houses staff from the Provost’s Office 22

$38M Receivable Agreement • There have actually been two such agreements • 6/27/14 - $29M • 7/1/15 - $38M • Cash management strategy Developed in line with the University’s Short-Term Investment • Guidelines Vetted by University Counsel, the Controller’s Office, University CFO, • Stites and Outside Auditors • Presented to the University of Board of Trustees and approved as part of the audit. There were no unauthorized transfers • Mechanism • • Due To / Due From – have existed since the creation of the Foundation 23

Benefits • Additional earnings to the University • FY 15 - $242,195 • FY 16 - $231,326 • Facilitated Restructuring of financing for Cardinal Station and KYT Property • • Medical School Renovation • Buildout for Student Counseling, Speed School Engineering Garage and AMCC Matching funds for Floyd/Warnock Street Project • Purchase – Tafel Property, 204 E. Market St, University of Louisville • Golf Club and K&I Lumber Property 24

Where did the $38M Go? (in millions) ULF Obligation as of 8/7/15 $38.0 KYT bridge financing 8/12/15 ‐ returned 6/22/16 ($22.0) K&I Lumber purchase 8/24/15 ($2.9) Engineering Garage and AMCC (multiple payment dates) ($1.6) Student Counseling (multiple payment dates) ($0.5) Floyd and Warnock Streets (last funds in) ($4.5) Belknap Research Park ‐ returned 6/22/16 ($6.5) $0.0 25

UHI Line of Credit • University Holdings, Inc. was organized 9/6/07 as Cardinal Real Estate, Inc. • UHI Loan from ULF authorized 4/16/08 for $25M • First draw 1/22/08 • Name amended 6/10/08 • 11/2/11 – ULF authorized increase from $25 to $35M • 11/2/11 – ULF authorized $10M pool for investments in UofL related startup companies 26

UHI Line of Credit Balance as of 8/ 31/ 2016 $10M Investm ent Fund $9,818,849.00 $35M Investm ent Fund for LLCs ULDC $17,178,862.00 Metacyte $6,997,982.14 UHI $261,175.43 $24,438,019.57 Total $34,256,868.57 27

Media Reports • Low interest – it is Prime • Records not available • To-date – 5 separate reports, 16 email responses and at least two phone calls Cotton and Allen prior to 2011 • • Dean Dorton Allen Ford 2011 – 12/31/13 UofL’s Enterprise Accounting System 1/1/14 – 6/30/15 • ULF’s Enterprise Accounting System 7/1/15 – present • • Salaries • Support operations 28

Flow of Funds ULF UHI LLCs Liability Multiple Receivables 29