Tag Archives: endowments make my head hurt

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:

Numbers!!!

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 Italic numbers are the percentages that I needed to add in to gel with Henson’s statement that “the orchestra has withdrawn an average of 10 percent annually over the last decade.”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…

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