Finding new strands of income to make the institutions sustainable Celeste Melgar “The modern museum has multiple purposes – to curate and preserve, to research, and to reach out to the public. They challenge us and ask us to question our assumptions about the past or the world around us.”
- Kate Williams (British Historian and Author)
Museums hold significant cultural and social responsibilities as institutions dedicated to conservation, education, trend-setting, cultural exploration, and the sharing of human narratives. Their role is essential to the sustainability and growth of a country’s art ecosystem. In recent years, however, museums have increasingly sought alternative sources of income beyond government funding and entrance fees, as budget constraints have tightened. Prominent institutions like the British Museum, the Smithsonian, and the National Gallery have explored new financial strategies, including ethical investing, to adapt to these challenges.
This shift toward ethical investment reflects a growing awareness of the broader impact that financial decisions can have on society. According to the Upstart Co-Lab report, Cultural Capital: The State of Museums and Their Investing, 61 museums in the United States have actively considered investment opportunities. A key trend among these institutions is the prioritization of aligning investments with their core values, a reflection of the profound cultural role museums play within society. Their financial choices, therefore, are not only aimed at generating returns but also at fostering a more ethical and socially responsible environment.
Figure 1. Factors Driving the Conversation for Museums to invest, Upstart Co-Lab, pg.7
What makes an Ethical Investment Principles?
Source: ICOM (International Council of Museums) Code of Ethics for Museums
According to the Financial Resources Section of the ICOM Code of Ethics for Museums, the foundational requirement for museum funding is the establishment of a written policy that reflects the museum’s purpose as a custodian of both “tangible and intangible natural and cultural heritage” (ICOM). If museums can sustain themselves and enhance the visitor experience through the ethical investment of funds that have been appropriately and transparently raised, it aligns with both ethical principles and factual correctness. This approach supports the museum’s mission while optimizing the preservation of heritage.
Museum Economics
“In the context of museums, a particularly important variant is to take psychological aspects into account: individuals are not totally rational and are sometimes subject to anomalies, and they may to some extent be other-regarding and act in a pro-social way.” (Bruno S. Frey, Stephan Meier)
Key areas of museum decision-making include collection management (whether to sell or acquire new pieces), pricing strategies (balancing free entry vs. revenue maximization), and commercial activities (e.g., museum shops and restaurants). Museums often charge low or no admission to attract visitors, but they may use price discrimination strategies (e.g., charging tourists more or setting higher prices for special exhibits).
Museums Investing their Endowments
Museums may deploy their endowments in accordance with their Endowment Usage Policy to safeguard the financial stability of the institution. Currently, many museums have been allocating their endowment funds to hedge funds, bonds, and private equity. Prominent institutions such as the Museum of Modern Art (MoMA), the Metropolitan Museum of Art (The Met), and the British Museum have adopted these investment strategies to establish a robust financial foundation.
Investing endowments provides museums with protection against inflation by enabling them to diversify their portfolios. This diversification serves as a safeguard, mitigating the impact of potential declines in the value of money.
Restrictions / Holdbacks
One of the things that is causing the museums to hold back from investing their endowments is the restraints on how it is not something the museum can show returns in a limited time line. In addition to the strong incentive for museums to align their investments with their values and mission.
Benefits of Museums Investing
“Using public funding, they have generated substantial private investment to rebuild, remain relevant and become truly outstanding. On average, national museums earn almost half of their own income (45.6%).” – National Museum Directors Council
Sources
“How Museums Can Ethically Invest Their Money.” 2021. The Art Newspaper – International Art News and Events. March 30, 2021. https://www.theartnewspaper.com/2021/03/30/how-museums-can-ethically-invest-their-money.
Frey, Bruno S., and Stephan Meier. 2006. “Chapter 29 the Economics of Museums.” Edited by Victor A. Ginsburg and David Throsby. ScienceDirect. Elsevier. January 1, 2006. https://www.sciencedirect.com/science/article/abs/pii/S1574067606010295.
International Council of Museums. ICOM Code of Ethics for Museums. Accessed September 11, 2024. https://icom.museum/wp-content/uploads/2018/07/ICOM-code-En-web.pdf.
Museums Association. “Museum Funding.” Accessed September 11, 2024. https://www.museumsassociation.org/campaigns/advocacy/museum-funding/.
Notes
If you can give specific examples of what these institutions are investing in that would be great.
On one hand you define an ethical investment as an investment that is ethical because it is consistent with the institution’s principles of ethics i.e. as long as they have in mind their first priority to preserve heritage. That’s fine but a weaker point imo.
On the other hand you define an ethical investment as an investment that does some social good. Great, this needs examples to back up that this is what they are doing. I.e., what are they investing in that simultaneously benefits the community and returns profit.
I feel like No.2 is a more important point to focus on if we’re talking ethics. Where is the money they are investing coming from? If it is public money then the public should have an interest in what that money is being used for. If the museum is investing in oil, tobacco, and weapons that’s bad.
We need to really define what is meant by investing and funding generation.
I.e. when your last quote says On average, national museums earn almost half of their own income (45.6%). That could mean that they earn lots through their gift shop / cafe / ticket sales rather than a stocks and shares portfolio.
Once the first few things are tweaked to gain some real clarity, concision, and focus, the restraints and benefits section needs to be fleshed out.