U of Louisville’s Endowment Returns 12.6%

Scandal-plagued university, foundation face Moody’s downgrade.

The University of Louisville’s endowment reported a 12.6% investment return for fiscal year 2017, according to Bloomberg News, offering a sliver of light in what has otherwise been a difficult year for the university and its foundation.

The University of Louisville Foundation (ULF) saw pledged donations fall by more than $32 million in a nine-month period and a scathing audit of the fund in June uncovered widespread mismanagement, including unauthorized spending on executive compensation, football bowl game trips, and basketball tickets, as well as risky investments, questionable real estate acquisitions, and poor transparency.

Kentucky state authorities are investigating irregularities at the endowment, and in recent weeks Louisville basketball coach Rick Pitino has allegedly been tied to an illicit program that funneled money to the families of basketball recruits from an executive from Adidas, which outfits the school’s athletic teams.  Tuesday, Moody’s Investors Service announced that the credit ratings for both the university and its foundation are under review for a possible downgrade. 

“Newly developing credit issues, including recent criminal allegations against senior athletic personnel, have the potential for increased financial burden on a currently weakened university liquidity profile,” according to Moody’s. 

The credit ratings service said its review will focus on the university’s ability to maintain stakeholder confidence and structural balance, considering its current weak liquidity, which Moody’s estimated at approximately $80 million of unrestricted cash as of June 30.

At the end of September, the foundation agreed to make several operational changes intended to increase transparency and eliminate questionable financial practices.

ULF eliminated all but one transaction in which it is a guarantor, and recommended no guarantees of others without the approval of the board of directors. It also said no direct investment, other than Cambridge advised, should be made unless requested by the board of trustees and approved by the board of directors.

In addition, the foundation decided endowment funds may no longer be used in quid pro quo arrangements such as rents, donations, grants or other support from investees. The June audit found that the foundation was requiring the startups in which it invested to rent space from the University. The foundation says it has provided training to all board members on conflicts of interest, and that it will require board members to complete conflict-of-interest forms annually, which will be reviewed for red flags. 


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