Endowment Funds Key Terms

Consider endowment funds key terms before making decisions affecting fund assets

Knowing the ins and outs of endowment funds can help you avoid common pitfalls organizations make when allocating fund assets and authorizing distributions from these funds. Consider, for example, whether it would benefit your nonprofit group to launch an endowment campaign that raises money to cover fixed operating expenses. You might also give thought to developing an endowment agreement for your fund that clearly spells out a donor’s options and your organization’s policy for managing the fund. Here’s a basic outline of key facts and terms that shed light on endowment funds.

 

Endowment campaign

Non-profit groups launch an endowment campaign to raise endowment funds. Proceeds from the endowment campaign are invested rather than spent. The funds can be used by the organization for a variety of expenditures, such as day to day expenses or the cost of special projects.
Try: Raise Funds identifies some of the reasons that non-profit organizations decide to launch an endowment campaign.

Donor advised endowment fund

A donor advised endowment fund allows a donor to make decisions about which organizations ultimately benefit from the fund's assets. When a business makes use of a donor advised endowment fund it is foregoing the need to have a private foundation allocate grants. One of the main benefits of this type of fund is that donors can designate heirs who also support the fund.
Try: NWMF compares the benefits of a donor advised endowment fund to other types of endowment funds.

Nonprofit endowment funds

If you're supporting a nonprofit endowment fund, you're providing financial support to nonprofit groups. One of the main benefits of having nonprofit endowment funds is that you'll take advantage of many state tax credits.
Try: GR Foundation identifies the organizations in Michigan that benefit from nonprofit endowment funds.

Endowment agreement

Most businesses encourage you to develop an endowment agreement before supporting any endowment fund. The agreement is usually made between the donor and the organization receiving the funds. The agreement outlines the reason for the fund and the procedures the organization agrees to follow in maintaining the assets.
Try: Go to Duke University to find out more specifics about the terms and conditions of a typical endowment agreement.

Asset allocation

One of the standard procedures involved in managing endowment funds relates to asset allocation. This refers to the process of distributing the assets in the fund so that the maximum return on investments can be realized.
Try: See a breakdown of asset allocation in a typical endowment fund at Appalachian State University.

Historic dollar value

Those in charge of managing endowment funds consider the historic dollar value of the fund when they are considering certain distributions. Normally, an endowment agreement will define how the historic dollar value affects the payout requirements, which are different for public and private foundations.
Try: Go to MCF to learn how some organizations respond when distributions from the fund are lower than the historic dollar value.

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