Arts groups keep a wary eye on market

  • Article by: MARY ABBE
  • Star Tribune
  • October 10, 2008 - 1:47 PM

Like most money-rattled Americans, the Twin Cities' largest arts organizations are watching their nest eggs shrink.

The Minnesota Orchestra, Guthrie Theater, Walker Art Center and Minneapolis Institute of Arts are supported in part by endowments -- pools of stocks, bonds and other assets -- that generate income and provide a cushion against hard times. The drop in the stock market has brought belt-tightening at those institutions and at the foundations that support the state's broader arts community.

The Minnesota Orchestra, for example, has slowed its plan for renovating Orchestra Hall.

The orchestra now expects a completion date of 2013, two years later than originally scheduled.

While smaller institutions aren't immediately affected by the vagaries of the stock market, they might be the most vulnerable to the "ripple effect" as consumers reduce spending and funders cut contributions.

For now, the McKnight Foundation, which is paying out nearly $10 million this year to Minnesota arts organizations and artists, is "doing business as usual," said Vickie Benson, its program director for the arts. "[But] if the markets continue the way they have, I can't imagine not seeing some decrease in 2009 budgets," said Benson, whose organization has $2.2 billion in assets.

McKnight and the Jerome Foundation -- two of Minnesota's key arts-support organizations -- rely on income from their investments. The Jerome's endowment dropped from $85 million last fiscal year to $75 million now. This year it expects to dispense the same as or slightly more than the $3.8 million it gave out last year, but it has reduced the amount of money earmarked for new recipients, cut 2 percent from all continuing grants and trimmed its administrative budget.

Similarly, arts administrators around the region are bracing for rocky times ahead.

"In tough times, you have to make tough decisions," said Minnesota Orchestra chief executive Michael Henson. "It's important not to be in denial about what's going on and to prepare your company so you can minimize the downsides, try to control it and look to the future. We've been in existence for over 100 years, and we're going to be around another 100 years, so you have to accept that you're in a cycle."

A veteran manager of English and Irish orchestras, Henson joined the Minneapolis organization in January and immediately focused on financial issues. He declined to state the current value of the orchestra's endowment because its books are being audited for the fiscal year that ended Aug. 31, but it reported $191 million in investments in 2007. He said the orchestra has budgeted a "conservative" $33.5 million for the '09 season, up from $30 million in '08. The increase primarily reflects a spring European tour being funded by a private donor.

The orchestra is not paring back its recording schedule or touring plans -- both fully funded for three years -- because Henson believes they're key to the group's growth and reputation. Violin superstar Joshua Bell will accompany the 2009 tour, evidence that the orchestra is not shirking on expensive box-office sizzle.

"We've been very careful to maintain the high artistic quality of what we're doing," Henson said.

'Braced for the worst'

Walker Art Center is closely monitoring financial markets. It draws about 40 percent of its $21 million annual operating funds from endowment income. The endowment fund stood at $197 million on June 30, down 7.5 percent from the year before (more current figures were not available).

So far it has made no changes in its program and exhibition schedule or its administrative budget, but it routinely adjusts expenditures at mid-year to ensure that its budget ends in balance.

Like other culture organizations, the Walker bases its investment strategies on advice from high-powered board members including venture capitalists, philanthropists and corporate CEOs.

John Taft, CEO of the brokerage house RBC Dain Rauscher, chairs the Walker's endowment committee. So far the committee has not recommended changes in the organization's portfolio allocation, said Christopher Stevens, the Walker's chief of finance and development. Nor has the Walker seen any decline yet in contributions made by individuals or foundations.

But, Stevens added, "Clearly every fundraiser of every nonprofit is highly sensitive to this economic climate, and if corporations, foundations and individuals start losing money in the market, that can have a huge impact. There easily could be a ripple effect. The market meltdown is intense right now, and we're braced for the worst."

At the Minneapolis Institute of Arts and the Guthrie Theater, all systems are go, too. The museum's plans for an expensive 2009 exhibition from the Louvre Museum in Paris are unchanged, and director Kaywin Feldman, who arrived in January, is continuing to hire curators to fill vacant posts. There has been no loss of corporate or foundation support, although some elderly museum members apparently are hesitating to renew their memberships, spokeswoman Anne-Marie Wagener said.

The museum's endowment, which provides about 18 percent of its $26 million annual budget, stood at $179 million when the fiscal year ended June 30, down nearly 7 percent from '07.

At the Guthrie, where endowment income generated 15 percent of last year's budget, "There's still a rush line every night for 'Little House on the Prairie,' and subscription ticket sales are on target," said spokeswoman Melodie Bahan. "It will take some time for arts organizations to see the impact of the economic situation; it's not an immediate hit like the price of gas or a gallon of milk."

As of March 31, the Guthrie's endowment was $44 million, down 4 percent from the year before. Its investment committee has not altered its general strategy, but is meeting more frequently than usual, said Jacques Brunswick, chief administrative officer.

"It's a rough time," he said. "I think the arts need people's money now more than ever."

Mary Abbe • 612-673-4431

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