Innovative divestment

The Arts & Culture section of The New York Times may be a go-to source for the latest reviews & avant-garde happenings, but it's also a place to find useful information about trends in cultural entrepreneurship.

For example, yesterday's offered this shocker about the storied Getty Trust, which has seen the value of its endowment plunge 27% over the past 3 years, from over $6 million down to $4.2. Besides leading to cutbacks in grants by the Getty Foundation, the decline has also led The Getty Museum to raise its parking fee--in Los Angeles, a de facto admission charge--by 50%.

The Times notes that almost 2/3rds of the Trust's endowment was reported to be made up of "alternative investments"--including venture capital and distressed debt. Against charges that its investments were too risky, the Trust's CIO defends the allotment as consistent with other institutional funds.

Which, as trend watchers in this field are no doubt aware, points to the problem now facing any number of charities with an investment portfolio. Over the past decade, thanks in part to the alternative investment strategies touted by elite institutions such as Yale and Harvard, many charities now find themselves struggling with the consequences of innovative strategies that, in the bubble years, seemed to offer a risk-free way to beat the market. For the Ivies and even the Getty, the crisis isn't fatal, but for small organizations the effect of a thirty-to-forty percent drop--or more--can be devastating.

We're at an interesting place in history regarding the future of social enterprise, not just in investment strategy but in regard to the movement as a whole. For the past decade or so we've immersed ourselves in the rhetoric of disruptive innovation--out with the old and traditional, in with any action that changes the way things have always been done. We were able to justify that rhetoric by appealing to short-term results, but now that the numbers are against us we're left with empty words.

There's a natural temptation to fly back to a more secure perch, and as I'll discuss later there are indications within the social enterprise community that we're re-defining ourselves in ways that do just that. However, if the movement is to fulfill its early promise, we must resist the impulse to take refuge in the familiar. The lesson of the crash is not that innovation is too risky for the charitable world, but that we still don't comprehend what innovation means.