I Think We Have Heard This Song Before...

from the LA Times


Getty slashes operating budget after severe investment losses
By Mike Boehm
Los Angeles Times Staff Writer
March 15, 2009

The J. Paul Getty Trust, envied as the economic Goliath of the museum world, is cutting its operating budget nearly 25 percent for the coming fiscal year -- an emergency response to investment losses that have totaled $1.5 billion since July and nearly $2 billion since mid-2007.

President James Wood said the financial stability of the Getty, the world's richest arts institution, could "fall off a huge cliff" if it delayed drastic cuts and hard times continue.

The Getty relies almost exclusively on investment earnings to cover expenses for its two Los Angeles art museums as well as the research, art-conservation and grant-making operations that extend the trust's reach around the world.

Its investment portfolio dropped 25 percent during the last half of 2008from $6 billion to $4.5 billion. ....


..... James Williams, the Getty's chief investment officer since 2002, said there was no plan to change the investment strategy the trust has pursued since the middle of this decade, betting heavily on "alternative investments" such as hedge funds, private partnerships, raw materials and "distressed" companies trying to emerge from Chapter 11 reorganization. Williams said the Getty's approach, which de-emphasizes holdings in publicly traded stocks and bonds, was safer because it allows greater investment diversity.

The strategy is known as the endowment model or the Yale model, in deference to the university that pioneered it in the 1980s, reaping huge returns and begetting many imitators among universities and other nonprofit institutions that can afford to invest huge sums over a long term. Williams said that over the past year and a half, the Getty has tried to minimize what he considers the approach's two pitfalls: investing in ventures that are loaded down with debt and tying up too much money in assets that are hard to sell quickly.

I will give them credit for the alight adjustment. But I still dont understand why it was so distateful for these institutions to do what I recommend to individuals keep funds needed in the next 3 years or more in very stable liquid assets like short term bond funds or tbills.