Why (or Why Not) an Endowment?

Balancing today’s needs against its vision for tomorrow


If you have spent most of your nonprofit career with smaller organizations, the concept of an endowment might seem out of reach, and even a little mysterious. Endowments are for Ivy League universities and metropolitan museums, right?

Not necessarily. It is possible for a smaller nonprofit to establish an endowment, and many do. Once you understand the nature of an endowment, you can decide if it is the right strategy for your organization.

What is an endowment?

An endowment fund is a pool of funds that are invested on behalf of a nonprofit. A portion of the investment returns are infused into the organization’s funding stream. The remaining returns are re-invested into the endowment to grow the principal over time. It is up to the board to decide how to split the earnings on the investment, usually with the advice of a financial advisor. 

Are endowment returns available immediately?

No. First, it takes time for the funds to realize returns (think of your own savings and investment accounts). Second, endowment gifts are often larger than an organization’s typical annual gifts and are paid to the organization over a designated period of time. 

Is an endowment a good idea for my organization?

Endowments are a great source of ongoing income. In fact, they often begin with a donor who wants to contribute to the long-term financial security of an organization, and who is willing to make a large gift toward that end. 

Endowment funds are also great places to park planned and estate gifts, such as bequests, annuities, and trusts. 

Many organizations, particularly in the context of a capital campaign, solicit gifts that have both a cash component and a planned gift component, with the planned gift directed toward the endowment. This helps them set higher goals for the overall campaign.

Sometimes organizations create an endowment because of the wishes of a donor. It’s always nice to receive a million-dollar gift, but a nonprofit, especially a small nonprofit with limited staff, will need to be sure it can manage, or hire the staff expertise to manage, the functions of an endowment.

Is an endowment ever a bad idea?

The prospect of a major donation to create an endowment is exciting – but not without risks. Before saying yes to an endowment gift, take a minute to consider the implications:

  • What are your organization’s more immediate cash and capital needs? An endowment is rarely large enough to provide full budget relief and may tie up valuable resources. Rather, endowment should be viewed as a valuable contribution to a sustainable financial model for your organization. In other words, you will still need annual giving to survive.

  • Be wary of additional restrictions on the gift, in particular, how the proceeds can be used. You want to have as much control as possible over your organization’s resources. The intentions of well-meaning donors should not get in the way of placing funds where they are needed most. 

  • Are you forming an endowment in response to a one-time gift, or as part of an overall fundraising strategy? While each path is valid, responsible decision-making will require analysis of your current, and anticipated, cash needs.

  • If you plan to launch an endowment campaign, realize that it may have an impact on your outright gifts, as donors weigh their plans to support your organization. 

What else should we consider before raising funds toward endowment?

If you don’t have them already, create gift acceptance and investment policies. Organizations like the National Council of Nonprofits offer advice and samples that cover everything from endowment gifts to gifts of stock, real estate, life insurance and more. Bonus tip: going through the gift acceptance policy exercise with your board is a great way to educate them about the types of gifts they can give and help raise.

An investment committee, and a financial advisor, will be required to develop and monitor the investment strategy for the endowment. Legal and planned giving counsel may be extremely helpful if you plan to accept complex estate gifts.

Don’t forget about administrative support to ensure proper stewardship. Endowment donors deserve annual reporting about the health of the endowment as well as the impact of their support.


The More Than Giving Co. can help you understand how an endowment can fit with your organization.
Schedule a call today to learn how we can help.

Vicki Burkhart