It’s been a rough time for the University of Louisville, and not just on the basketball court.
With an 8.5 percent loss in the first seven months of its fiscal year, deeper than the 6.6 percent decline in the Standard & Poor’s 500 Index, the $646 million endowment is severing ties with its poorer performing managers and shifting assets into private equity.
It also pulled money from hedge funds such as Adage Capital Management and Highfields Capital Management to cover contributions to the university’s operating budget.
“We’ve fired managers and hired new managers,” Michael Kramer, the director of investments at the foundation that oversees the assets, said in an interview. “We’re selectively looking for opportunities.”
U.S. university endowments, which are heavily weighted to global equity markets, are facing a grim fiscal year that ends June 30. Of a dozen state schools surveyed by Bloomberg, the average loss was 3.8 percent through Dec. 31. Some schools are evaluating their portfolios. The University of California, which manages $8.8 billion, plans to pull money from the worst-performing hedge fund managers and redirect assets to top firms.
In light of lower expectations for returns, endowments and other nonprofit groups said they plan to make shifts in asset allocations over the next 12 months to 18 months, with increases to private equity, venture capital and real estate and decreases to fixed income, according to a February survey of 156 respondents by investment manager Commonfund.
As if it weren’t bad enough that the men’s basketball team forfeited post-season play while potential rule violations are investigated, the size of Louisville’s endowment has contracted 17 percent in the current fiscal year, the foundation said in a report on March 7. In addition to the investment decline, the assets shrunk because of payouts to the school, Kramer said.
The fund’s long-term performance has fared better, with a 5.4 percent annual gain over a decade through December, topping a Cambridge Associates benchmark of 5 percent for schools with $500 million to $700 million in assets, according to the report.
Scaled Back
Since the beginning of last year the fund pulled more than $100 million from at least 18 outside money managers, according to the report. It liquidated $20 million with Boston-based Adage Capital to finance spending on the university’s operations, Kramer said.
“They have actually performed very well,” Kramer said in an e-mail about the hedge fund founded by former endowment managers at Harvard University. “We still have $61 million with them.”
The endowment redeemed $2 million, also for school budget reasons, from Boston-based Highfields Capital, another of the so-called Crimson Cubs started by Harvard alumni, leaving it with $11.6 million there.
The foundation terminated another six managers overseeing $45.2 million, including Mason Capital Management, a hedge fund that lost 20 percent from the beginning of 2014 through three quarters last year betting on companies that are distressed or going through mergers and other corporate events. Mason Capital didn’t immediately respond to a call seeking comment.
