The Financial Reasons for Abolishing Museum Boards (2024)

Posted inOpinion

My investigation into the financial realities at the Whitney Museum following the controversial Tear Gas Biennial made me realize nonprofit endowments are not doing okay.

The Financial Reasons for Abolishing Museum Boards (1)byClark Filio

The Financial Reasons for Abolishing Museum Boards (2)

Why is it that the endowments of the major New York art museums yield worse returns than your retirement fund? Take the Whitney — the current board of trustees has folks like Trump mega-donor Victor Ganzi, and Citadel founder and hedge fund all-star Kenneth C. Griffin. These guys have access to the most talented and ruthless financial minds on the planet, yet the endowment that they are the fiduciaries for lags about five percent behind a standard balanced portfolio. That five percent lag cost the Whitney about $115,301,790 from just 2009 to 2016.

Whitney Endowment Returns against Benchmarks

YearWhitney endowment returnsAverage of 28,696 US nonprofit endowmentsCRSP equity returnsU.S. Treasury ReturnsBalanced portfolio returns (60/40)
2009-0.086.0842-.0011-.0087-.0041
2010.0641.0874.1761.1065.1483
2011.1328.1145.1525.1306.1437
2012.0183.0477.0979.1800.1307
2013.1379.0988.2473-.0960.1100
2014.1263.0816.1839.1386.1658
2015.0406.0027.0210.0418.0293
2016-0.0199.0232.0576.1210.0830
Full sample average0.0517.0665.1220.0796.1051

Whitney Endowment Potential Returns using Benchmark

YearWhitney actual returnsWhitney Actual start-of-year endowment valuePotential Whitney return rate (60/40)Whitney potential returnsDifference in returns added to following start-of-year potential valueWhitney Potential start-of-year endowment value, following year
2,009-17,044,000.00198,755,500.000.00-814,897.5516,229,102.00194,216,602.00
201011,412,000.00177,987,500.000.1528,802,322.0817,390,322.08211,606,924.08
20124,843,000.00187,000,500.000.1430,407,914.995,564,914.99226,184,839.07
20123,840,000.00209,017,500.000.1329,562,358.4725,722,358.47273,924,197.53
201328,968,000.00210,050,500.000.1130,131,661.731,163,661.73276,120,859.26
201431,184,000.00246,858,000.000.1745,780,838.4714,596,838.47327,525,197.73
201511,793,000.00290,012,500.000.039,596,488.29-2,196,511.71368,483,186.02
2016-6,247,000.00313,110,500.000.0830,584,104.4436,831,104.44428,412,290.46
0.11
total:115,301,790.46

I didn’t understand any of this stuff at first. This research started for me around the time of the Tear Gas Biennial. I wanted to find out whether the Whitney’s endowment was invested in Warren Kanders’s business. (They were, at least indirectly, through a firm called Adage Capital Management’s stake in BlackRock.) I discovered that the Whitney’s financial audits were freely available online, so I set out to learn how to decipher them. Part of the picture, I realized, was also in their tax filings (990s) which I also found were publicly available. Soon enough, I was looking at all the audits, and finding out all kinds of cool stuff. For example, if you check out page 35 of the Museum of Modern Art audit, you’ll see that the Tower condos are exempt from property tax, so the museum levies its own equivalent tax like a little Vatican, or colony.

As I started to develop a beginner’s literacy with this material, I realized that I would never understand it truly without some basic knowledge of financial instruments and norms. For most of my life I’ve worked as a bike messenger or in restaurants, living at a level of precarity that never really gave me cause to figure out how a mutual fund works.

It was in the process of teaching myself finance that I came across an abundance of research on nonprofit endowment asset allocation and performance. This study of the endowment performance of 28,000 US nonprofits was a major discovery. A picture was beginning to develop that made very little sense, but was empirically true — nonprofit endowments do very, very poorly on average. That same study contained instructions on how to replicate their data, and so I applied it to the Whitney and saw that it does worse than the average, which is already bad. My next question was why.

In the 1980s, Yale University rewrote the playbook for endowment investing — it’s complicated but the basic principle is that they determined that they did not need to prioritize liquidity, which is the ability to actually convert an investment into cash, as high as other kinds of investing bodies, and so they played with assets that might offer higher returns over a long period, but with less liquidity. These are alternative assets, like hedge funds, private equity, or even cryptocurrency. Yale was incredibly successful with this model, and it soon caught on. Between 1986 and 2019, the average endowment allocation to alternatives rose from 4% to 58%. For this model to work, you need the best of the best managers. The average large endowment relies on over a hundred managers to actively handle their investments.

Average Endowment Allocation to Alternatives over Time (Dollar-Weighted Means)

19861990199419982002200420082019
Hedge Funds2.40%6.20%14.70%17.90%23.10%20.50%
Distressed Securities and Event Arbitrage0.10%2.10%2.40%
Real Estate2.30%4.40%4.20%6.90%5.90%5.00%7.50%6.50%
Venture Capital3.70%4.50%4.40%4.70%4.40%4.00%9.00%
Leveraged Buyouts1.40%2.10%3.80%4.20%4.20%10.10%13.60%
Natural Resources1.10%1.10%0.90%1.90%2.50%6.50%6.00%
Other1.60%1.30%1.50%2.00%2.20%3.20%2.30%2.40%
Total Alternatives4%12%18%27%34%37%54%58%

Not everyone is Yale University. Not every nonprofit has access to innovative in-house financial genius. But that hasn’t stopped them from pretending that they do, and while many endowments are trying the Yale Model, few are capable of implementing it fully. In 2019, the Whitney’s endowment was 61% alternative assets.

While most endowments enjoyed good returns during the golden age of alternative investments in the ‘90s, the long-term reality has been grim. Student alumni groups at some universities are beginning to take action, worried that their donations are being squandered. Today, it’s possible to capture the average growth of the stock market through passive index funds, which if balanced with some government bonds, have realized 10% returns over the last 100 years. It’s hard to fathom why an endowment would spend so much time and money on actively managing its investments to do considerably worse than that.

The authors of the study I mentioned before, Sandeep Dahiya and David Yermack, thought to test out a theory as to why some funds do worse than others in an earlier version of their paper. They were able to determine that there is a direct correlation between large endowment performance and distance in miles to Wall Street — the closer the fund is geographically, the worse it does. They speculate that this is because those funds are particularly vulnerable to predatory sales pitches from fund managers looking to hock risky and hard to understand financial products. They dropped this element from the most recent version of the paper, when I reached out to Yermack for a comment he replied that the data didn’t meet their standards when they expanded the timeframe, and he added that “There is a lot of noise in the data from one institution to the next.”

I don’t know for sure, but board members likely enjoy the opportunity to endear themselves to the banks and firms that sell these products. After all, it’s not their money they are risking. In fact, when they do risk their own money, they rarely go above 10% in alternative assets.

Any serious solution to this situation starts with the abolition of the museum board structure. They have no accountability, they elect their own members, and they have completely f*cked up the one thing that they were supposed to be good at. As to what to replace them with, I don’t think it’s hard to imagine a body that is democractic and accountable, populated by members of the community with a meaningful interest in the work of a museum.

Smaller institutions with smaller endowments usually have way less allocated to alternatives, and according to Dahyia and Yermack, realize better returns if you account for their weaker buying power. They are likely less attractive to the above-mentioned predatory sales pitches and they also tend to have board members with more direct ties to the community, and thus more of a stake in the work at hand. I treat them a bit like a proof of concept that actually caring about the thing you’re doing helps you do it well.

Related

Clark Filio

Clark Filio is a New York based artist and organizer. He's also a producer for the HBO series How To With John Wilson.More by Clark Filio

  • The Extraordinary Story of Black Librarian Belle da Costa Greene
  • Our Mid-March Picks of New York City Art Shows
  • Discovery of 8,600-Year-Old Bread Gives Rise to Half-Baked Claims
  • Artist Collective Withdraws from Whitney Biennial
  • MoMA Accused of Denying Entry to Visitors With a Keffiyeh

The Latest

Asian-American Art Is Plagued by Generational Amnesia

Many members of the current generation do not recognize or even know about past efforts to create visibility for Asian-American artists.

by Sharon Mizota

Yong Soon Min, Intrepid Korean-American Artist, Dies at 70

As a self-proclaimed “Cold War baby,” Min navigated the shifting political climate of post-war Korea and plumbed the Asian-American diasporic experience.

by Sigourney Schultz

Remembering Cecilia Gentili’s Singular Artistry

The late activist’s art transformed religious symbolism used to denigrate and debase, forging a path in the world for the undocumented community, sex workers, and transgender people.

by Tavia Nyong’o

Viral Wonka Experience Backdrop Sold to Benefit Palestine Aid

The disastrous Glasgow event that took the internet by storm in February just keeps on giving, this time for a good cause.

by Rhea Nayyar

Sponsored

From The Beginning: Sculpture by Liu Shiming

Work by one of China’s earliest modern sculptors is celebrated in the inaugural exhibition at Liu Shiming Art Gallery in Midtown Manhattan.

Hannah Toticki Searches for Our Guardian Angels

With Storage of the Gods, the artist explores what a spiritual practice can look like in our secular, stressed-out world.

by AX Mina

Decolonizing Joseph Conrad’s Heart of Darkness

Nikesha Breeze’s A Mutiny of Morning reclaims African voices from the controversial novel.

by Rachel Harris-Huffman

Sponsored

Styling Identities: Hair’s Tangled Histories

Organized by a team of curators passionate about hair, this show at the Wadsworth Atheneum Museum of Art in Connecticut recognizes that everyone has a hair story to tell.

Massive Missing Head of Ancient Ramesses II Statue Uncovered

The 12-foot bust completes a puzzle that has remained unsolved since 1930, when the bottom portion was first discovered.

by Maya Pontone

Roman Bust Discovered Beneath English Mansion’s Parking Lot

“It was an amazing feeling to have found something so old and special,” said the excavator operator who stumbled upon the artwork.

by Rhea Nayyar

The Financial Reasons for Abolishing Museum Boards (2024)

FAQs

Are museums funded by the government? ›

While federal funding creates obligations for museums, it can also pay for accommodations. The Institute of Museum and Library Services (IMLS) is the primary source of federal funding for American museums and libraries.

What is a museum board used for? ›

It is a popular surface for colored and watercolor pencil. The surface is not hard or very smooth making it an excellent choice for all drawing techniques. Fine stationers and invitation converters also find the board quite suitable for letterpress, engraving, embossing and foil stamping.

How much money do museums get from the government? ›

California Museums Receive $19.7 Million in State Grants.

Are museums paid for by taxpayers? ›

they charge admission, and those fees help to make up a portion of the cost of operating the museum. They are public museums and taxes (federal, state and/or local) pay for some of their costs.

What is another name for museum board? ›

"Museum board" is the common name for 100 percent rag or cotton-fiber boards that meet the current minimum standards for archival use. Museums were among the first major users of this type of board for storing and framing artwork, hence the name. At one time, this board was also called rag board.

What is the difference between museum board and conservation board? ›

Museum mat board is made of 100% cotton. It naturally contains no acid content and is therefore inherently acid-free. Museum cotton mat boards are generally the most expensive option. Acid Free or “conservation” mat board is usually made from wood (paper) pulp.

Is there another name for Museum Board? ›

Book board is used to make the covers of a book. You might hear it called “binder board”, “Davey board” or “museum board”.

How are museums funded in the United States? ›

Most of the annual budget comes from a combination of strapped local government agencies; private philanthropy, such as foundations, individuals and corporations; and ticket sales and other earned income sources, such as venue rentals or gala events.

Where does funding come from for museums? ›

Museums are funded in a lot of different ways. These might include public government funding (federal or more local), grants, university support, private funding (individuals, corporations, trusts), and donations.

Who funds museums in the USA? ›

The National Endowment for the Arts (NEA) works to bring the arts to every community in America, including rural areas, military bases, and urban centers. It provides grants to all types of arts organizations—including museums—to exhibit, preserve, and interpret visual materials.

Are Smithsonian museums government funded? ›

The Smithsonian receives funding from federal government appropriations, other governmental entities, and private sources.

Top Articles
Why do my SMS messages fail to send?
What kinds of insurance do I need?
St Thomas Usvi Craigslist
Katie Pavlich Bikini Photos
Koopa Wrapper 1 Point 0
Bashas Elearning
PontiacMadeDDG family: mother, father and siblings
Wal-Mart 140 Supercenter Products
What's Wrong with the Chevrolet Tahoe?
City Of Spokane Code Enforcement
Bme Flowchart Psu
Iron Drop Cafe
Items/Tm/Hm cheats for Pokemon FireRed on GBA
“In my day, you were butch or you were femme”
Chile Crunch Original
Playgirl Magazine Cover Template Free
Iu Spring Break 2024
Andhrajyothy Sunday Magazine
Craigslist Portland Oregon Motorcycles
Ukc Message Board
Nhl Tankathon Mock Draft
eHerkenning (eID) | KPN Zakelijk
Samantha Aufderheide
Atlases, Cartography, Asia (Collection Dr. Dupuis), Arch…
Elbert County Swap Shop
Klsports Complex Belmont Photos
Usa Massage Reviews
Spirited Showtimes Near Marcus Twin Creek Cinema
R/Mp5
Pdx Weather Noaa
Everything You Need to Know About Ñ in Spanish | FluentU Spanish Blog
Rush County Busted Newspaper
Duke Energy Anderson Operations Center
Human Unitec International Inc (HMNU) Stock Price History Chart & Technical Analysis Graph - TipRanks.com
Rust Belt Revival Auctions
Soulstone Survivors Igg
Bbc Gahuzamiryango Live
Bella Thorne Bikini Uncensored
Bcy Testing Solution Columbia Sc
craigslist: modesto jobs, apartments, for sale, services, community, and events
Frigidaire Fdsh450Laf Installation Manual
Rs3 Nature Spirit Quick Guide
Quaally.shop
Senior Houses For Sale Near Me
Wgu Admissions Login
Pickwick Electric Power Outage
Sacramentocraiglist
Theater X Orange Heights Florida
Washington Craigslist Housing
Heat Wave and Summer Temperature Data for Oklahoma City, Oklahoma
Att Corporate Store Location
Latest Posts
Article information

Author: Nicola Considine CPA

Last Updated:

Views: 6019

Rating: 4.9 / 5 (49 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Nicola Considine CPA

Birthday: 1993-02-26

Address: 3809 Clinton Inlet, East Aleisha, UT 46318-2392

Phone: +2681424145499

Job: Government Technician

Hobby: Calligraphy, Lego building, Worldbuilding, Shooting, Bird watching, Shopping, Cooking

Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.