University of Louisville Sues Former President over Endowment Losses

The University of Louisville and the University of Louisville Foundation have filed a lawsuit against former university President James Ramsey, accusing him and four others of depleting the school’s endowment through intentionally complicated and unauthorized transactions.

The lawsuit also named as defendants Ramsey’s former chief of staff, Kathleen Smith, former vice chairman of the foundation Burt Deutsch, former university CFO Michael Curtin, and former foundation CFO Jason Tomlinson, as well as law firm Stites & Harbison, which served as legal counsel for the foundation during the alleged acts.

According to the lawsuit, the defendants knowingly caused the foundation to spend endowment funds at “an excessive and unsustainable rate,” and took endowment money “that should have been invested and diverted it to speculative ventures, loans, and gifts that had little realistic chance of repayment.”

The suit goes on to accuse Ramsey and Smith of paying themselves and others “excessive compensation” out of the foundation. It also said they disguised the transactions to avoid scrutiny and circumvent the foundation’s spending limit and annual budget.

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“The defendants’ bad faith actions and other wrongful conduct caused the endowment to lose millions of dollars,” said the suit. “The defendants worked individually and collectively to commit the bad acts.”

According to the endowment’s investment policy, the foundation is prohibited from spending more than it makes, a rule intended to enable the endowment to grow, and fund the university’s mission in perpetuity. The lawsuit cited a stern warning from the foundation’s investment advisor Cambridge Associates over the endowment’s high spend rate.

“It is incumbent on us as your investment advisors to lay bare in the plainest terms that the current level of net draws (i.e., spending minus endowment gifts) is likely unsustainable,” said Cambridge Associates, according to court documents. “We strongly advise adjusting the spending policy.”

Cambridge recommended that the foundation reduce its spending rate from 7.48% to 5.5%, which Cambridge said, “was still at the high end of what endowments generally spend,” and that the foundation “no longer adjust the three-year rolling average by dropping the lowest year.” It also said that the foundation should “no longer include the unspent portion of spending policy from years past in the current spending policy calculation.”

The suit alleges that the finance committee didn’t reevaluate the foundation’s spending rate until eight months after it received the warning from Cambridge, and even then didn’t acknowledge the recommendation to reduce the spending rate, only accepting the advisor’s recommendation to exclude the unspent portion of the spending allocation, which it allegedly failed to implement.

“Despite officially adopting the recommendation, the defendants caused the Foundation to continue including the unspent carryover in future budgets,” claimed the lawsuit. “Thus, the defendants—without authority—caused the Foundation to spend millions more than it should have.”

The suit also claims that the actual spending rate by the foundation was even higher than the 7.48% that Cambridge called excessive, accusing the defendants of “using accounting tricks to inflate the endowment pool’s value on which the 7.48% was assessed … these techniques artificially inflated the endowment pool’s value by approximately $70 million in some years, thus inflating the spending allocation by millions.”

Tags: Cambridge Associates, Endowments, James Ramsey, Litigation, University of Louisville

Falling global stock prices are being blamed for a rare quarterly loss reported by the $125.8 billion Danish pension fund ATP, which saw its investment portfolio lose DKK1.1 billion ($179.5 million), or 1%, in the first quarter of 2018. It is the first negative quarter for the fund since the third quarter of 2015, and only its third in five years.

“In a difficult market, a negative return of 1% for the first quarter of the year was satisfactory in light of the very high returns realized in 2017,” ATP CEO Christian Hyldahl said in a release. “The result indicates that returns are about to be normalized as central banks place a tighter hold on liquidity and ramp up interest rates.”

While the negative return was attributed to falling foreign-listed equities and state bonds, the fund said investments in unlisted equities, infrastructure, and real estate contributed positively to quarterly returns.

Over the previous five years, ATP’s average investment portfolio returns have been 3.9% per quarter, and it has reported positive returns in 17 of the previous 20 quarters.

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“We have been blessed with exceptionally high returns in recent years,” said Hyldahl. “Our strategy remains to invest and to take risks in order to create returns in spite of the increasing market uncertainties. We do have the margin to do this, but we also keep a keen eye on our risks and the portfolio composition.”

ATP allocates the risk and risk spread associated with each investment on the basis of four different risk factors: equity factor, interest rate factor, inflation factor, and other factors. The fund says the factor framework gives a shared risk understanding, enabling uniform management of all investment activities and a comparison of returns and risks across various asset classes.

The fund also said that due to moderate interest rate drops for European state bonds with long residual maturity, the value of guaranteed pensions increased in Q1, and its hedging portfolio saw a positive return.

ATP is a mandatory pension scheme with more than 5.1 million members, and approximately 40% of all Danish pensioners have no other pension income than ATP, and the state-funded old-age pension.

Tags: ATP, Equities, Pension