On November 15, 2019, The Haverford Trust Company hosted its Fifth Annual Educational Series for Nonprofit Breakfast on the topic of “How to Grow a Thriving Endowment.” More than 150 leaders in the nonprofit community, representing over 100 organizations, met at the Kimmel Center to learn from a panel of some of the region’s top nonprofit executives.
Rob Stiles, Director of Endowments and Foundations, hosted the event and kicked off the program with an explanation of Haverford’s Nonprofit Solutions,
“For more than 40 years, Haverford has been a leader in community involvement in the Philadelphia region. We have the solutions, capabilities and resources to help our nonprofit clients sustain, grow and achieve their overall missions. We will continue to provide education for their staff, leadership, committees and board members, like this forum to connect and learn from one another.”
The term “endowment” is a broadly used term with no universally accepted definition. At Haverford, we view an endowment as a pool of funds designed for use over a long time horizon, of which the use of income is set by the Board or donor. Endowment income can be used to help fund operations, specific programs, or as an emergency fund.
An endowment can be managed to create a reserve of predictable future funding that helps demonstrate that the organization is financially viable and invested in the future. Endowments help diversify the organization’s income sources while allowing donors to give a gift that keeps giving. While creating an endowment is not necessarily right for every organization, if you have six months of reserve funding available for operating needs, your organization might be ready to start an endowment.
The panel, moderated by Marla Conley, Esquire of the Conley Law Group, and featuring leaders from Girl Scouts of Eastern Pennsylvania, Eagles Autism Foundation, and the Museum of the American Revolution, discussed the challenges that nonprofits experience in building sustainable organizations and how an endowment can help support a nonprofit in perpetuity. They spoke about three core tenants—development, sustainability, and governance—that are critical to establishing and growing an endowment that can drive positive impact for decades to come.
If it is a strategic goal for your organization to start an endowment, you don’t need to fundraise for every initial dollar. Kim Fraites-Dow of Girl Scouts of Eastern Pennsylvania shared an alternative to fundraising for your endowment; create room in the operating budget and balance sheet to generate a surplus. For example, if you can create a $250,000 surplus for two years, you’ve built a $500,000 endowment without any fundraising.
Another way is to create focus through an illustrative and impactful endowment narrative that demonstrates why a donor should give to your endowment. It is vital to articulate your distinctive value in this hyper-competitive philanthropic market with limited donor dollars. Develop this clearly defined statement of the immediate and long-term goals of your organization so donors understand the impact they can have today and the legacy that they can create in the future.
Brainstorm answers to the following questions to help focus endowment efforts:
- What is the purpose of the endowment?
- Why should a donor make a long-term investment in your organization?
- How will the funds be used to help achieve your mission in the future?
- How will you motivate donors to give and communicate their role in the future of your organization?
- What are the goals for the endowment over the next one, three, and five years?
Powerful and thoughtful responses to these questions can help you to create a comprehensive marketing plan that can be used to identify and cultivate prospects, solicit gifts, and serve as an effective steward to donors.
Scott Stephenson of the Museum of the American Revolution highlighted the importance of engaging and empowering your board members to become champions, promoting the ongoing sustainability of the fund. Scott referenced the importance of ensuring you have the right person on the right committee. He cultivated one board champion by connecting them with a program they were passionate about. Involvement in the program strengthened the board member’s commitment to the organization, which in turn, motivated him to donate a major gift to help expand the impact of that passion for years to come.
Demonstrating the impact of donations and proving you will be a good steward of an endowment gift are pivotal to encouraging repeat donations and promoting endowment sustainability. For example, Ryan Hammond of the Eagles Autism Foundation takes a highly analytical approach, using an outcomes-based model with high levels of accountability. She highlights how every dollar is working and imparts measurable outcomes, which are attractive to donors. Ryan provides custom progress reports describing how each donors’ gift was used. It is important to have a framework in place to track donations, thank donors, and communicate the impact the donor made.
Ryan also brought up the importance of community and corporate sponsorships in sustaining your organization and its mission. To leverage strategic partnerships, she develops tailored experiences and creates custom sponsorships. This produces a network of collaborators that grows your brand, attracts donors, and engages community partners to support your organization’s mission.
Developing a strong internal infrastructure of policies and procedures surrounding an endowment is crucial for your organization. Endowment management and oversight is one the most critical tasks for the board, as they hold the ultimate fiduciary responsibility over the endowment. Strong governance provides the board with the ability to protect and preserve the assets today, while ensuring long-term sustainability of the fund into the future.
Below are some of the most important policies for proper governance practices:
- Investment Policy Statement – Every endowment needs a comprehensive investment policy to drive the management and investment strategy of the fund. The policy should be aligned with the intention of the fund and can include asset allocation ranges, risk tolerance, and roles and responsibilities of the parties involved.
- Spending Policy – The proper spending policy maximizes endowment payout, maintains long-term sustainability, and reduces volatility and risk. The policy can include how the spend is calculated and what the spend can be used for.
A nonprofit may also form an Endowment Committee to focus on the governance of the endowment. Duties of the committee include encouraging gifts to the fund, ensuring assets are managed prudently, and presenting endowment reports to the board.
As your nonprofit partner, Haverford Trust wants to provide the tools and guidance you need to succeed in achieving your mission. If you are interested in building or growing an endowment, contact us today to start the dialogue and to be invited to future Educational Series for Nonprofit events.
Haverford’s Educational Series for Nonprofits
Haverford’s Educational Series for Nonprofits was created to provide an opportunity for nonprofits to learn, discuss common challenges, share innovative solutions, and collaborate on best practices. Designed to empower and educate nonprofit executives and board members, the series connects our nonprofit partners with the resources and top talent available to help them work towards their missions and maximize their impact in the community.