2008 Financial Summary

The year 2008 was a financial storm that brought the economies of the world to the brink of disaster. It spared very few, leaving a trail of devastation across the investing landscape. The crash in the housing market and the implosion of the credit markets resulted in a decline in the S&P 500 of 41.7 percent from October 31, 2007, to December 31, 2008.

Every equity asset class declined significantly. Many institutional investors who held large positions in illiquid investments such as private equity found themselves facing liquidity issues and the need to generate cash by selling publicly traded securities and other assets at multiyear lows. Many alternative investments that had provided protection in prior downturns did not perform as hoped and generated negative returns.

This scenario has led some individuals to believe that current views regarding asset allocation and diversification are somehow misguided. I disagree. Except for some very rare situations, I’m not sure anything other than market timing could have prevented the losses that have been incurred, and for institutional investors, trying to time the market is a fool’s game.

This period has been described in a number of ways, but I believe the best description was provided by an executive of the Federal Reserve Bank, who characterized the events as “a recession overlaid by a panic.” The S&P 500, a broad indicator of equities, generated a negative 28.46 percent in 2008. The Barclays U.S. Aggregate provided a positive return of 4.07 percent. The Cleveland Foundation’s composite return was a negative 26.41 percent for 2008.

During 2008, the foundation received approximately $71.7 million in donor contributions and $46 million in other revenue. This gain was offset by approximately $506 million in net negative realized and unrealized gains and $95 million in expenses, resulting in a net decrease in assets of $484 million.

Although this year was very difficult from a financial standpoint, I have the utmost confidence that we will recover in as short a time as possible.

J.T. Mullen
Senior Vice President and Chief Financial Officer