Endowment Draw Rates and Other Numbery Things

As y’all can imagine, when I was in Minneapolis, I fell behind with updating the Orchestral Apocalypse Index. Well I’m finally catching up with it this evening. (I know, I know; I’m slow. To be fair, I’m not getting paid to do any of this, so…) In the process of catching up with the latest news, I came across some numbers in this October 23 MPR article: Why not spend Minnesota Orchestra’s $140M endowment?

Yes, you heard me right:


Yeah, apparently on the 23rd we got some more concrete numbers from management about 2007-12 endowment draw rates, and in the rush of news, I missed it. So let’s have a belated party, y’all, and comb through these babies! *uncorks champagne* (You know you’re a nerd when…)

OK, so. Here’s a chart with numbers from the article. Just to be clear, this chart is for the Minnesota Orchestral Association Endowment (other funds from the Oakleaf Trust and St. Paul Foundation, etc., are not included in this chart, and are discussed earlier in the presentation within the article). And I’m not sure where funds raised for Building for the Future campaign fit into all this.

Remember back here when I tried to take a stab at the endowment draw rate from 2009-2011? I’ll copy those numbers here. Bold numbers are ones that (I thought) I knew for certain, based on statements in Strib articles. Italic numbers are the percentages that I needed to add in to gel with Henson’s statement that “the orchestra has withdrawn an average of 10 percent annually over the last decade.” (Actually, if you look on their website, they claim the average rate draw has been more like 9.4% over the last decade. And as best I can calculate, that’s closer to the truth. But 10% does sound more dramatic than 9.4%, and I guess that leads to the question, what’s .6% among friends?)

OK, so…

2002 – 7% or less

2003 – 7% or less

2004 – 7% or less

2005 – 7% or less

2006 – 7% or less

2007 – 6%

2008 – 6%

2009 – about 17%

2010 – about 17%

2011 – about 17%

I didn’t think management would have included 2012, since we aren’t done with 2012 yet. But apparently they are including it in their “last ten years” calculations. So their numbers look like this…(And FYI I’m stealing the 2003-2006 numbers from the list above, because those aren’t included on management’s chart. If these numbers are ever officially released, let me know.)

2003 – 7% or less

2004 – 7% or less

2005 – 7% or less

2006 – 7% or less

2007 – 6.4%

2008 – 7.5%

2009 – 10.7%

2010 – 11.4%

2011 – 13.6%

2012 – 17.7%

So now let’s look at the differences between the two sets of numbers…

2007 is…close enough. I’ll let a .4% difference slide, since Michael Henson lets a .6% difference slide…

2008 is…confusing. On their chart, management says there was a 7.5% draw. In the Strib in December 2008, they said they’d employed a 6% draw. Don’t really know how to reconcile those two figures. Maybe their fiscal years are separate from their calendar years, and there was a discrepancy? Or maybe they were talking different percentages from different funds? Maybe they were flat-out lying to the Strib? Maybe there’s another explanation? I don’t know. I don’t have enough information to tell.

Beyond that, though, the rest of the difference between the two sets of numbers can be attributed, I think, to management shaving off a “7% or less” year and adding in another heavy draw year (2012) that I hadn’t included. That skewed my calculations a few points higher for 2009-2011.

I think it’s interesting to note that the marked increase in the draw rate only occurred once the Great Recession hit. In the Wikipedia article on the 2008-2012 global recession, the Great Recession is defined as “a marked global economic decline that began in December 2007 and took a particularly sharp downward turn in September 2008” (my bold).

And you can definitely see evidence of that in management’s chart. It seems as if things were on a fairly even keel draw-wise in 2007 and before. According to the Star Tribune in December 2008, “The board is allowed to draw up to 7 percent, but spokeswoman Gwen Pappas said the organization has been very firm about avoiding that method.”

So here are some facts, drawing both from that statement of Ms. Pappas’s, and the chart given to MPR:

1) From 2003-2012, the draw rate averaged 9.5% (at most).

2) From 2003-2007, the draw rate averaged 6.9% (at most). From 2008-2012, however, the draw rate nearly doubled, to an average of 12.2%.

So anyway, keep that in mind when you hear the “ten percent over the last ten years” line. Something around 9.4% is technically true, based on the numbers we have now, but I think it would be more helpful to think of it in terms of “twelve percent since the recession began” (or “twelve percent since the musicians’ latest contract was signed” , or “twelve percent since Michael Henson was hired”; take your pick, depending on who you’re rooting for).

I’m curious why management is even bringing the 2003-2007 numbers into this…? Can you think of a reason? The 2003-2007 numbers were actually pretty good, at least according to the Strib statement. Not perfect, maybe, but not especially catastrophic, either. So why bother dragging those in at all? To make it look as if they’ve had a draw rate problem for longer than they actually have? To make it seem as if the problems were more systemic than situational? To keep Michael Henson from looking bad (take a guess at what year he came aboard)? To deflect attention away from what must have been some seriously abysmal investments that were made during the recession? I don’t know. I don’t know what to think.

Seeing the dates when the draw rate ticked upward also makes me wonder where the Strategic Plan fits into all this… The Minnesota Orchestra Strategic Plan was released in November 2011. It says that at the time of publication, they’d been writing the Plan for eighteen months, or since the spring of 2010. Insinuation: management began to see major deep-seated problems that required a major organizational overhaul…I don’t know, in the spring of 2008? At the earliest? Latest? Maybe? How long would you need to see deep-seated problems before you realize they’re deep-seated problems, and that you need to take incredibly drastic action to solve them? I don’t know, and sadly, we haven’t heard from the board about the exact timeline, or the process of or reasoning behind their Strategic Planning, so I can only guess. So I wonder, what specifically were the deep-seated fiscal problems that needed to be addressed? In the spring of 2008, the recession hadn’t really started yet. The endowment draw rates hadn’t climbed yet. The stock market hadn’t totally tanked yet. Were the deep-seated fiscal problems due solely to the musicians’ 2007-2012 contract? (Then why did management ever agree to it? And why was Michael Henson so proud of how things were going financially in 2010?) Was there a major decrease in attendance or ticket sales? (But even if there were, ticket sales consist of a relatively small percentage of revenue, right?) I don’t know. Were donations down? Argh. My brain hurts. I’m so tired of having to dig around and read between lines. It would be really nice if those in power could answer these kinds of questions in detail. I mean, they’ve got a huge website with which to do so. This isn’t the private sector. Those in the orchestra should answer their public’s questions. IMHO.

Another wrinkle: who knows what other numbers have been bandied around? The musicians say they’ve been given conflicting, misleading financial information. Maybe this chart is among that misleading stuff. After all, the chart management provided to MPR doesn’t seem to jive with

And I’m sure there are other similar remarks, too, that I just haven’t found yet. (Give me time…)

So…yeah. Numbers. I don’t know. *shrug* If there are any math geeks out there, feel free to chime in. Or management! Management, you can feel free to jump in, too, if you want. Let’s get a dialogue going. I’ve got an audience, as you know. Endowments (um, and math) aren’t, as Randy Jackson would say, my wheelhouse, so I’d appreciate any input…


Filed under My Writing

17 responses to “Endowment Draw Rates and Other Numbery Things

  1. Amy Adams

    plug your ears, dear…

  2. Anon

    I’m not getting the chart info, but it could be just me. As I read it, it doesn’t make sense. For fiscal year (FY, or F in your chart?) 2007 you have an endowment total of $106.3 million (mil, or $Ms in your chart?) with a draw that year of $6.8 mil which would leave the remainder endowment for the next fiscal year at $106.3-$6.8 or roughly $99.5 million. So does the difference of $6.1 mil mean that the difference went elsewhere? *scratches head* Or that the endowment lost that amount of value due to poor market returns? Also, according to what management said in the Strib, ‘labor costs’ amount to 48% of $31 million, which is roughly $14.8 million. $14.8 mil at $135,000 average salary would equal over 100 employees. Does that sound right to you? *scratches head again*

    • Hmm, you’re right… I hadn’t really dug into that portion of it. I’d guess that $6.1 million was lost in the market…? But the thing is, they must have made some REALLY TERRIBLE INVESTMENTS if they lost 6%-ish in that time. In the MPR article, it says the fiscal year ended in August 2012. So I’m *guessing*, unless they’ve changed dates, that fiscal year 2007 lasted from September 2006 to August 2007. In September 2006 the Dow was at roughly 11,500. At the end of August 2007, it was 13,300. So roughly a 13% gain. http://www.fedprimerate.com/dow-jones-industrial-average-history-djia.htm The S&P was at 1311 in September 2006; by August 2007, 1474. So again, roughly an 11% gain. Nowhere near a loss. http://www.fedprimerate.com/s-and-p-500-history.htm Even if they’re not talking fiscal years, and are talking calendar years, the Dow went from about 12400 in January 2007 to 13264 in December 2007. The S&P went from 1409 in January 2007 to 1468 in December 2007. Pretty impressive gains. So if this discrepancy IS due to losses in the market, they’re admitting they WAY under-performed, like to the tune of 15%+ or possibly more, and I don’t think it’s unreasonable to ask what exactly happened there. You could probably go year by year and see how if they under-performed or over-performed the market; that might be an interesting analysis. Maybe I’ll go through all that eventually; I don’t know. I feel uncomfortable doing it because I don’t know a lot about how that sort of thing is done. So yeah, FANTASTIC question. They should have explained that. I don’t *think* they have.

      I’m thinking the labor costs also include benefits, so that might account for the rest of the “labor costs.” But these numbers are so weird that I don’t really trust anything they say anymore, unfortunately. I’m tending to believe the musicians when they say the information they’ve been giving is confusing and misleading and incomplete, because the numbers they’ve given the public sure seem to be…

      • Anon

        You have to be careful with market analysis. Up markets can still lead to losses in portfolio investments if the funds manager isn’t on his or her game. The two, market health and returns on investments aren’t always directly proportional.
        Having said that, there’s a tiny outside chance they’ve been cooking the books and using the funds manager’s supposed underperformance as a means of scapegoat.
        In situations like that, all the books (/electronic filing records) need to be looked at by an auditor. Little discrepencies here and there will show up only when a true accounting is given of the finances. Little discrepencies are hardest to hide.

        • Interesting stuff; thanks for sharing.

          Would appreciate even more input on this fascinating topic. I don’t mean to be paranoid – I really don’t – and I’m not accusing anyone of anything – I’m just confused, and would like some answers from those in power, especially since SO MUCH is at stake for the community with this upcoming contract at Minnesota. I think too many arts lovers just kind of take the budgets and fundraising of major organizations like the Minnesota Orchestra for granted…? I know I have. But those days are over. We should ALL be concerned about the fiscal health of the organizations we support, and ask all the questions we can…

  3. Elizabeth T.

    A couple points related to your writing – I do not claim anyone is lying/truthing/etc. This is merely information to consider. I like numbers. THIS IS LONG. I hope it makes sense. If not, please let me know & I’ll fix it.

    1 – why are the numbers different in the earlier years?
    Accounting methods change from time to time. It is possible that expenses/income are not being calculated using the same equations today as in ’04.
    This does *not* mean fraud or deception is occurring. Simply that an analytical tool changed.
    If this is the case, a professional financial evaluation (read: audit) would take this into account, because the Orchestra’s accountants would be talking to other accountants and they could explain what changes occurred.

    2 – calculating average % draw.
    I would question the use of the non-specific years that are “7% or less”. It’s not always a good idea to try to calculate with real numbers and with words. Separating the numbers into “all, including guesses” and “the years with specific numbers” is better, as it clearly indicates a level of mathematical confidence.

    3 – what is “average”?
    When comparing numbers which vary greatly, the “average” might not be the best number to use to explain the meaning of the collection of numbers. The median might give a different picture than the mean.

    The “mean” is what the ordinary person thinks of as an average – the sum of the values divided by the number of values being added. Using your numbers,
    7 + 7 + 7 + 7 + 6.4 + 7.5 + 10.7 + 11.4 + 13.6 + 17.7
    the mean here is 9.5.
    The ‘median’ is the number in the middle of the numbers listed; half of the numbers are greater than this value, and half are lower than this value. Here is where you can accommodate for having a single huge number. It gives a different picture relating to a *distribution*. The median of the above numbers is about 7.2.

    So, if you want the average which is the median, it’s 7.2; the average which is a mean is 9.5.

    This begs the question of *how* averages are calculated, as well as which numbers are used to do the calculating.

    To put this in a different light, look at:
    5, 10, 12, 15, 16.
    The mean is 11.6
    The median is 12.

    5, 10, 12, 15, 16, 50
    The mean is 18
    the median is 13.5

    5, 10, 12, 15, 16, 100
    The mean is 26
    the median is 13.5

    If you look at the 2nd and 3rd examples, the last number changed hugely, but the median is the same. If you have one year with a huge discrepancy, you can use the median and it will be looking at the Big Picture’s Distribution. This is often done with comparison of income. Go back and look at the above numbers and imagine them to be wages in dollars per hour. If you only look at people with similar incomes (the first set of numbers), then the mean and median are almost the same. Once you add in Bill Gates, in the 3rd set of numbers, suddenly you can claim “Our average pay is $26”, which ignores the fact that 5 of the 6 people make less than that figure.

    4 – definitions change of time. The same activity/cost can be considered “public relations” one year, “professional development” the next, and “miscellaneous” the next.

    5 – absolute values and percentages can get mixed together to provide a murky, confusing or even meaningless picture. As a note, the numbers in this point are confusing, because there’s no real explanation about what I mean — which might be the situation with the orchestra, where no one really is using the same numbers in the same way with the same meanings.

    If you go back to the list of draw %, and compare how those numbers change:
    draw % % change
    7 —
    7 0
    7 0
    7 0
    6.4 – 8.6
    7.5 17
    10.7 42.7
    11.4 6.5
    13.6 19.3
    17.7 30.1
    % change = (year 2 – year 1) divided by (year 1)
    (11.4 – 10.7) / 10.7 = 0.065, which is 6.5%

    The “average change” here 11.9
    which is the average (mean) of the %change, *not* the %draw, which we’ve already decided is either 7.2 or 9.5.

    If you eliminate the “7% or less” non-specific years, then
    the “average change” becomes 17.8

    But, one can equally state
    A “we started at 7, we ended at 17.7, the change is 10.7%”
    because 7 and 17.7 are % of something else

    B “we started at 7, we ended at 17.7, the change is 153%”
    because 153% of 7 is 17.7

    C “we started at 7, we ended at 17.7, the average change is 17.8”
    because this takes into account the various ups and downs from year to year.

    Confused yet? Me too. It’s simply an exercise in determining how many different ways can we manipulate the same set of numbers. What different pictures does it paint? Far, FAR too often people just play with the numbers until it either
    a) makes sense to that person
    b) supports their preconceived notion of what it ought to look like
    c) other

    As many point out … this is why an independent financial analysis is critical. At that point one single set of definitions and equations being laid over everyone’s claims. Like the conductor of an orchestra – one person sets the tempo, so that everyone else knows what’s going on. You may not like it, but at least there is a single definition and everyone knows what it is. A financial conductor should set the definitions and equations for managing the groups’ money. And, like a conductor, her finance-baton ought to be in public view. [if this isn’t too convoluted an analogy]


    never attribute to malice that which can be adequately explained by stupidity.

  4. Elizabeth T.

    whoa! the 2 column of numbers just before the end looks horrible, with all of the spaces taken out. If this looks horrible when you post it (if you do), please let me know – I’ll take it out and re-post it without that point.

    I’m enjoying reading your blog here.

  5. Mary Schaefle

    I compared this chart to the MN Orch 990 (tax form for nonprofits). First, the end of year balances in the chart match the tax forms. Good. The tax forms also include beginning of year balance, contributions, investment earning (or loss), expenditures, and expenditures for current operation.

    Current operations rough translation: $$ from the endowment that help run the orchestra on a day to day basis. They help the infamous bottom line to make up for losses.

    The figures for draw above do not match either the “expenditures” or the “expenditures for current operation.” In all cases, the “operating draw” on the chart is HIGHER than the “expenditures for current operations” on the tax forms.

    The instructions for the 990 sometimes tell you to exclude things that are included on your financial statements.

    I have a decent understanding of the 990 – until you get into the area of pensions (being underinvested) and endowments.

    Yes, there needs to be – if not a full audit – another set of qualified eyes on the financials that can explain this. At least to the Board and to the musicians. Not sure if the public at large wants to know although I certainly do!

    P.S. Emily – their audit states that donations to Hall renovations are reflected as temporarily restricted funds. They are not included in this chart or in the endowment.

    • Thank you, Mary!! I think the public at large SHOULD know, if they want to! If there wasn’t so much at stake with this upcoming contract, then maybe it would be more irrelevant. But when so much is at stake re: the quality of the orchestra, then yeah, any well-informed opinions about financial analysis become more and more valuable. IMO.

    • Oh, another question – Do you know if the roughly $50 million that’s non-hall related (for artistic endeavors, touring, and shoring up the endowment, etc)…do you know where those contributions fit in? Should they be in the chart? I’m so sorry if these are stupid questions; I’m just, as they say on the internet, a total n00b to this kind of stuff!!! Thanks for sharing your expertise, and I look forward to hearing more.

  6. mismn

    I hope you will forgive a somewhat off-topic comment here. I just saw on the Strib website that the Minnesota Orchestra musicians will “rally at Peavey Plaza at noon Thursday to mark the one-month anniversary of their lock-out.” No other info, but I assume they would welcome any supporters who might show up…

    Emily, I love your blog! Your writing is very inspiring! I check your site every day.

  7. Mary Schaefle

    Emily – not a stupid question at all. It’s clear on one part of the remaining $60M. The $30M for the endowment – is for the endowment. The $30M for artistic and educational projects is unknown. I can’t find it referenced anywhere in the 990 or audited financials.

    Some other details.
    FISCAL YEAR Their fiscal year begins Sept 1 and ends Aug 31. What is referenced as F2011 is the fiscal year that ended 8/31/2011.
    MARKET LOSSES On market losses, there was a sizable loss in 2008 for the endowment. That was true of absolutely everyone, corporate or individual accounts. I’m not an investment analyst so wouldn’t even try to analyze whether their returns are reasonable. The projections for their strategic plan made in 2007 assumed a much larger return for years 2008 and on, and a much larger value of the endowment. http://www.minnesotaorchestra.org/pdf/strategic_plan/#/10/ Happened to lots of people and organizations. My question is whether they’ve done a modified assumption going forward. Haven’t seen anything. I hope they’ve at least done something internally, but the Contract section of the website all links back to the strategic plan (published late 2011).

    Again more questions than answers.

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