Endowments are often thought of as billion-dollar pools of money run and owned by colleges and universities, with the Ivy Leagues being particularly (in)famous for their large endowments. But endowments are not simply immobile and untouchable funds collected by higher education institutions, as many people believe them to be. They are broad investments, widely used across various industries, and make large impacts in the nonprofit world.
In August, Karen Houghton, CEO and Founder of Infinite Giving, was joined by Tony Martignetti at Planned Giving Accelerator, Cathleen Rittereiser, Co-Author of Foundation and Endowment Investing, and John Griffith at Hirtle, Callaghan & Co. for NXUnite's “Endowment Excitement: Fundraising & Management." The panelists discussed the generalizations many nonprofits make about endowments, deciding if an endowment is right for your organization, and how to get started with endowment fundraising and management.
Breaking endowment stereotypes
When asked what she would tell someone who is new to the endowment world, Karen responded, “This is not your mom’s endowment.” Endowments in 2022 don’t have to be— and often aren’t— a fund of a billion dollars, and many endowments exist outside of college and university settings. Nor do endowments have to be restricted funds to be meaningful: quasi-endowments and micro-endowments provide other, less restrictive investment opportunities.
A quasi-endowment is still a protective sum; your organization still invests in it; and it grows with compound interest, like any other endowment. The major difference between a quasi-endowment and a traditional endowment is that if at some point down the road, your organization undergoes financial changes, your organization can access these funds and use them for a different purpose. Karen strongly advocated for quasi-endowments because, with these endowments, your organization is not locked into capital forever, and it gives flexibility to smaller organizations.
Should your organization start an endowment?
Once you break past the stigmas and stereotypes surrounding endowments, you might start considering creating an endowment for your nonprofit organization. The first step Karen recommends when deciding if an endowment makes sense for your organization is looking inward. When advising nonprofits that are looking to invest in their futures, Karen first asks them, “Are you setting 10-year goals? Are you looking at horizons beyond 5-year goals?”
The next question Karen asks organizations is, “Have you met a healthy reserve fund?” Your organization is likely not in the best place to raise money for an endowment if you’re in a scarcity mindset. Karen also recommends thinking about where your reserve funds are kept— your organization should place funds in a position to maximize your return on investment.
Before starting an endowment, it is imperative that you understand investments in general. Then if you “can save enough money to meet its operating needs for more than twelve months,” it might be time to seed an endowment fund.
The first step to getting started
While the semantics of starting an endowment often feel complicated, Karen highlighted that they should be simple. While there’s a lot of thoughtful consideration that goes into the decision of whether or not you should start an endowment, once your organization has decided and is ready, it can take as little as 3-5 business days to actually open an endowment.
So what should you do to get started? The first concrete step, all the panelists agreed, is to talk to a fiduciary or an investment advisor.
John emphasized the fact that there are so many people in the industry, and many would be willing to hop on a call and chat about the options available to your organization. “Talk to people who know something about this,” John said, because people like him and his fellow panelists are “in the business of helping nonprofits.” Karen added, if you feel overwhelmed when considering starting an endowment, remember that “endowments are complex and investing is hard, but the people in your lives around you make it easy.”
On the panel “Endowment Excitement: Fundraising & Management," the panelists stressed the importance of endowments within the nonprofit sector and highlighted the ways in which they can be useful to organizations of all different sizes.
Endowments might seem like big, scary projects reserved for higher education institutions, but they are so much more than that. They can provide financial flexibility for your nonprofit’s organization and can allow you to accomplish large projects and, ultimately, fulfill and achieve your nonprofit’s mission in ways you hadn’t thought possible.