Tale of the 2008 Getty Financials: Negative Income, $3.71-Billion "Alternative Investments"

In his memo to the J. Paul Getty Trust's staff, informing them that financial shortfalls will necessitate a job freeze and other cost reductions, Getty president James Wood revealed:

Our endowment ended the 2008 fiscal year [ending June 30] at $5.98 billion and, since that time, with financial markets deteriorating further, the value of the endowment has declined roughly 25%.

That's not the half of it.

The Getty's latest round of cost reductions follows last May's announcement that 114 Getty positions would be eliminated. The trust's endowment is now (December 2008) down 30% from its $6.4-billion total at the end of fiscal 2007, when there was a $49.36-million operating deficit on a budget of $307.7 million. Net assets were down from $8.88 billion at the end of fiscal 2007 to $8.43 billion at the end of fiscal 2008.

What's more, according to the Getty's audited financial statements, total revenues, support and investment income, which amounted to $1.16 billion in fiscal 2007, showed a LOSS of $150.02 million in fiscal 2008.

It's all about the investments:

Net investment losses totaled $139.54 million, compared to a GAIN of $1.14 BILLION in 2007 Although Wood assured staffers, in a recent memo, that "the Getty's endowment is managed prudently, with careful oversight," the financial statements show that the lion's share of the Getty's fortune---a whopping $3.71 billion of the $5.98 billion it had invested as of June 30---was allocated to "alternative investments." Here's what the financial statements have to say about that:

To increase expected returns and provide further diversification to the investment portfolio, the Trust has been increasing its allocation to alternative investments where no readily determinable market value exists. A significant portion of the Trust's alternative investments is made up of limited partnerships, which include private equity, venture capital, hedge funds, distressed debt and real assets.

It should be noted that the Getty is among many distinguished nonprofit institutions that were attracted by the allure of hoped-for higher returns from alternative investments that have now proven dicey, if not disastrous.

Other revelations from the 2008 financials:

The Getty spent some $81.35 million on acquisitions, compared to $27.27 million the previous year. Proceeds of sales from the collection totaled $66,000 in 2008; $3.39 million in 2007.

The Trust still persists in capitalizing its collections---a practice frowned upon by most major art museums, which do not regard permanent collections as financial assets and don't assign values to them on their balance sheets. The Getty valued its collection at $1.87 billion in 2008; $1.79 billion in 2007.

What I don't know yet is the amount of the Getty's operating deficit on its $339-million budget for fiscal 2008. This figure cannot be determined from the online statement of activities, because (unlike the statement of activities on p. 76 of the trust's 2007 annual report, which reported that year's $49.36-million deficit) the 2008 online financials omit both the amount of the deficit and amount of endowment money that was used to fund operations. The 2008 annual report is not yet online.

I am awaiting an answer from the Getty to my query about the amount of the deficit. I'll update if and when I have that information.