L.A. arts endowments fell in 2011-12, but things are looking up

The public's window into nonprofit arts groups’ financial condition is a time-lapse look. The numbers typically don’t become available until many months after an organization has closed the books on a fiscal year. They're now in for most groups’ 2011-12 fiscal year, and for most of the biggest arts and cultural  organizations in L.A. it was no bonanza. But better things could be ahead for the current 2012-13 fiscal year because of financial markets that have boomed since the last one.

Charity Navigator, a New Jersey-based nonprofit group that tracks other nonprofits' financial performance to help donors decide where to funnel their money effectively, said that the median result nationally for 105 arts groups in its database for the year ending June 30, 2012 was a 2.3 percent decline in net assets. That means half the groups experienced a decline of at least that much.


Net assets include the value of land, buildings and equipment, as well as investments. Another indicator of how organizations fare financially is their endowment – permanently invested funds they rely on to generate returns they can pump into their operations, augmenting what they get from donors, their box offices and concession sales.

While there are different formulas for deciding how much to tap for operations, typically organizations aim to spend about 5 percent of their endowments’ value. Often they calculate the value over three years to level out the effect of a single great or lousy year.

Endowments generally grew in 2009-10 and 2010-11, two years of recovery for investment markets after two years of severe losses.

But eight of the 11 largest Los Angeles groups saw their endowments drop in 2011-12. Another, the Autry National Center of the American West, goes by the calendar year and hasn't yet issued its reports for 2012. Its endowment dropped 1.3 percent in 2011.

Two organizations avoided losses by playing it safe. The Museum of Contemporary Art and California Science Center were considerably more risk-averse with their investments than other groups.

With 27 percent of its endowment in stocks and mutual funds, far lower than financial analysts would typically recommend for a middle-aged person's 401k retirement plan, MOCA reaped a 0.3 percent investment return. The Science Center took even less risk and came away with a 1.6 percent gain. Neither made any withdrawals during the year.

The eight endowments taking hits ranged from Center Theatre Group’s 0.8 percent drop to the Hammer Museum’s 11 percent decline. The J. Paul Getty Trust’s endowment ended the year at $5.3 billion – a decline of $246 million, or 4.4 percent.

Declining endowments don't necessarily mean that the investments themselves lost money, although in most cases they did. Another factor is withdrawals. The Getty withdrew $274.1 million to pay bills, far outweighing investment growth that totaled $28.1 million, for a 0.5 percent rate of return.

The best endowment results were reported by the Los Angeles Philharmonic, which benefitted from having a fiscal year that ended Sept. 30, 2012, three months later than the others. During the three extra months, one common measure of stock market performance, the S&P 500 index, rose by nearly 6 percent. The upswing has continued, and as of May 23, the S&P 500's gain since June 30, 2012 was 21.5 percent, giving organizations an excellent chance to more than recoup last year's endowment declines.

The Phil’s endowment  grew from $200 million to $214 million – an increase of 6.9 percent, even after withdrawing $7.9 million to help with operating expenses.

Spending $109.6 million, the Phil would have ended the year with a deficit if not for the endowment. Instead, its bottom line was a $7.6 million initial surplus, which dipped to $4.4 million because of subtractions due to an accounting change related to its pension plans.