Philadelphoa Story

Chalk up another victim of the recession.

On Saturday the Board of the Philadelphia Orchestra voted to file for bankruptcy. The Orchestra said that their operating balances are dwindling and that without relief they will run out of cash by the middle of May.

The Orchestra has no long-term debt and has an endowment valued at over $110 million, but the endowment is restricted to paying for musician salaries and educational outreach. This is not uncommon among nonprofits, where endowed chairs are funded, in part, by income generated by donated funds. If expenditures are restricted to income and the endowment’s various sub-accounts are invested according to rigid strictures, the Fed’s zero interest rate policy may have claimed an unforeseen victim.

Management claims that it needs bankruptcy protection in order to renegotiate its pension obligations, musician and administrative salaries, and occupancy costs. The musicians union has opposed the filing, noting that they are willing to have the Orchestra use the endowment for operating expenses. That may not be their prerogative, however, if the funds donated with court-approved restrictions.

In any case, it’s very sad that one of the world’s finest symphony orchestras has been reduced to bankruptcy. The “Fabulous Philadelphians” have a storied history and have been a key inspiration for many aspiring musicians. It’s hardly conceivable that they would dissolve, but it’s possible. Honolulu’s orchestra did just that a few months ago. A society has the culture that it can afford. Let’s hope that this isn’t their final song.

Douglas R. Tengdin, CFA
Chief Investment Officer
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