Let’s pretend you’ve been asked to analyze the investment income of eight corporations. Consequently, eight shiny charts have just been delivered to your desk…
Before you go any further, scribble down some thoughts, free of any preconceptions you bring to this blog. Who is doing the best? Who is doing the worst? Who is under-performing? Who is over-performing? Who had the best and worst years? Are there any questions you’d like to ask the men and women in charge of these corporations about the investment decisions they’ve made over the last few years?
As you might have guessed, these corporations are orchestras, and I got the numbers from their 990s. From Corporation #1 to #8 they are Boston, Chicago, New York, Los Angeles, Cleveland, Philadelphia, Pittsburgh, and Minnesota. (These are the eight orchestras in the United States with endowments over $100 million.)
Here is their net investment income in one convenient graph form. (The size of their endowment appears after their name in millions.)
And although it’s imprecise, here is a chart of the (net investment income 08-11) / (dollars in endowment) equation. Just to take into account that Boston and Chicago have a lot more resources than we do…
And then another chart that represents what I see in my mind when I look at the last chart:
So when we’re talking about orchestras that appear to be under-performing their peers, two obviously jump out: Minnesota and Los Angeles.
However, I have a theory about Los Angeles… They earn a crap-load more program service revenue than Minnesota does. (I believe “crap-load” is the technical term non-profit analysts use.) Here, look:
So they’re obviously not as reliant upon investment income as Minnesota is. For example, in FY 2011, Minnesota got 24% of its revenue from program service revenue, while LA got a whopping 67%. Minnesota depended on investment income for 25% of its revenue, while it only made up 3% of LA’s revenue. Therefore, a hit to their investment income won’t hurt them as much as it would hurt us.
So that brings us to Minnesota.
We didn’t do so badly in 2008, 2010, and 2011. We really didn’t. Actually, take 2009 away and we did really well.
But but but. In FY2009 the MOA sold $28.7 million in securities that they had paid $42.7 million for…resulting in a nearly $14 million loss.
While reading this, I remembered what Mary Schaefle had written back in “What We Know About the Minnesota Orchestra’s Finances – And What We Don’t“:
Unfortunately, 2008-09 is again the spoiler. The Orchestra sold a large amount of stock at a $13.9 million loss. It is well known advice to buy stocks low and sell high, and the 2008 market was low as a contrabassoon. It’s possible the stock was on its way to becoming a penny stock. But why would they own such a volatile, risky stock? It could be a bad decision or bad investment advice – to the tune of almost $14 million. I know you’re ready with my next line. A review by an investment analyst would certainly help explain some things.
I’m no investment analyst and I don’t pretend to be. (I don’t even play one on TV.) However, I’d love to hear the full story behind this stinker of a year…especially once I saw that no other American orchestra had such a big loss that year. So why did we? What were the securities that were sold? Why were they sold? Who made the decision to sell? Did the securities rebound in value, or were they indeed on their way to becoming penny stocks? If so, why did the MOA have such a stock in its portfolio? Did this loss have anything to do with the MOA being unhappy with and switching their investment adviser? Who was the dumped investment adviser? Did the adviser have any connection to anyone on the board? Do board members have any additional information that they’d like to step forward to share? Did Jon Campbell or Richard Davis or Wells Fargo or US Bancorp have anything to do with any of this? Is a brand new lockout conspiracy theory about to explode in popularity?
As always, I’m open to critiques, corrections, and comments.