The Endowment Handbook

1What Is Endowment?

This chapter enables you to:

• Understand the role of endowment funds in nonprofit organizations and society.
• Explain the benefits and possible pitfalls of endowments for a cause, its donors, and its staff.
• Describe why some critics eschew endowments.
• Define three types of endowment and how they may be regulated.
• Review the history of endowments in various cultures.

Endowments, generally, are financial assets that are held permanently by a nonprofit organization and invested to create income and capital appreciation. A reasonable portion of the endowment's value is spent annually to support programs and operations, while the excess income and/or appreciation are accumulated in the fund, so it grows over time as a hedge against inflation. Endowments can be established to support the ongoing operating expenses of a nonprofit organization or for designated purposes such as scholarships, projects, programs, institutes, endowed positions, or any aspect of its charitable work.

This chapter presents the benefits and pitfalls of endowments for an organization, its supporters, and its fundraising team. It describes the three kinds of endowments, various accounting and reporting considerations, strategies for building endowments, and the historical context for endowments.

Endowment in Today's Context

Traditionally, endowment has been the gold standard for ensuring that a cause has financial resilience, especially in the United States. Colleges and universities have ...