FOUNDATION FINANCE COMMITTEESeptember 23, 2016

ULF Performance vs. Peers and Benchmarks

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ULF Performance vs. Selected Benchmarks

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• 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

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Erroneous Comparisons

Comparison to 60/40 Equities/Bonds

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• IU – Actual number is 55% (not 96%)• Apples to Oranges

• IU 2015 Market Value - $1.974B• 51% alternatives and private equities

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••

Or $1.0B – larger than our endowmentWe have earned 20.6% on private equities since inception

• New funds added to the endowment• FY 2015 - $86.3M• FY 2014 - $95.3M

Erroneous Comparisons

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

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Endowment Growth

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

‐

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71% of philanthropy during the campaign was for current use, while 29% was for endowments.

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Endowed vs. Current Use Gifts

Current Use$736,334,189Endowed

$302,548,037

Spending Policy – ULF Board Approval

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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

University Spending

5.50%

5.50%

5.50%

5.50%

6.90% 6.84%

6.53%

6.77%

7.80%

6.43%

7.75%

4.0%

3.0%

2.0%

1.0%

0.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Effective Spend Rate

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State-Mandated Budget Reductions

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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 Cumulative Total

Mid‐Year State Budget Revisions Base Budget Cuts in the Enacted Budget Bill

1 FY 2004 was a recurring budget cut that ended in FY 2004‐05.

2 FY 2016 is pending legal decision.

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)

Recurring 2015 ($2.1) ($2.1) ($2.1) ($6.4)

Non‐Recurring 2016 2 ($2.8) ($2.8)

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)

• 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%.

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In FY 2010 the unspent carryover balance was $67.7M

Total Endowment Spending per Fiscal Year 2011-2016

45,000,00040,000,00035,000,00030,000,00025,000,00020,000,00015,000,00010,000,000

5,000,000‐

5.5% Spending Carryover Spending

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$30.070M $31.907M $33.632M

$40.261M

$35.517M$38.874M

It would have made no difference if the 5.5% had been lowered!

Why do I say that?

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Mounting criticism of schools who maintain spending allocations are too low.

What If?

Actual ‐ 5.5% Estimated ‐ 4.2% DifferenceSpending Between 2010 ‐ 2016

Carryover

347,543,270 288,735,484

0 67,692,630

347,543,270 356,428,114 8,884,844

• 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

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• Projected average -1.5%• Ohio State University -3.4%• University of Virginia -1.5%

University of California ($9.3B) -3.4% University of Florida -3.2%

• Endowments cannot invest with a 1- to 2-year time frame in mind – it would be financially irresponsible

How Are the Investments Doing?

Why Not?

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• 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 Cambridge Associates College and University median 16 times.

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Our Investments Are Doing What They Are Supposed to Do

• The University of Louisville has spent$574,970,192.93 of Foundation allocated dollars between FY 2003 and 8/31/16.

What Is the Real Story?

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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

Real Estate

15.56% 16.03%

23.29% 24.39%25.47%

26.57%27.63%

28.52%

28.71%30.19%

10%

5%

0%

15%

20%

25%

30%

35%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Return on Cash

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The Other Half of the Story

$10,000,00010,410,173

$5,000,000

16,926,25317,662,420

18,430,890

19,233,078

20,070,465

20,944,59722,809,611

23,803,93421,857,084

$0

$15,000,000

$20,000,000

$25,000,000

Growth in Equity

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• Chevron – Student Parking (900+ spaces)

• Martco and Old World Pasta – ground for Dr. Mark & Cindy Lynn Stadium

• Equipment Depot – ULAA parking

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• 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

Indirect Benefits

• 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

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$38M Receivable Agreement

• 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

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Benefits

Where did the $38M Go?

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(in millions)

ULF Obligation as of 8/7/15 $38.0KYT 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

UHI Line of Credit

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• 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

UHI Line of Credit

Balance as of8/31/2016

$10M Investment Fund$35M Investment Fund for LLCs

ULDCMetacyteUHI

$9,818,849.00

$17,178,862.00$6,997,982.14

$261,175.43$24,438,019.57

Total $34,256,868.57

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• 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

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Media Reports

Flow of Funds

ULF UHI LLCsLiability

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Multiple Receivables

Net state appropriation vs. Available Foundation Funding

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Net State Appropriation versus Available Foundation Funding

Net State Appropriation

2001-02 147,159,400

2002-03 143,969,600

2003-04 139,518,700

2004-05 143,955,100

2005-06 149,275,100

2006-07 158,125,500

2007-08 168,572,300

2008-09 154,522,400

2009-10 154,522,400

2010-11 152,338,100

2011-12 150,849,100

2012-13 141,194,758

2013-14 141,194,800

2014-15 139,076,900

2015-16 139,076,900

2016-17 132,818,400

Foundation Funding

39,704,800

35,014,400

32,964,800

36,763,800

62,362,800

77,345,900

101,682,200

117,226,700

115,303,800

108,765,800

129,422,500

141,835,700

142,627,970

143,191,681

154,685,981

149,274,820