Raising Endowment in the New Economy
M. Jane Williams, Principal
November 2009

Over the last year, while the value of endowments at many nonprofits suffered, the Philadelphia Museum of Art embarked on matching a challenge gift to create endowed funds to support and name key staff positions, including curatorial posts. Most donors to date have been supporters of the Museum over time, but the positive response – driven by the challenge gift – shows that thoughtful donors can be motivated to make significant endowment gifts in "the new economy."

This new reality has indeed rocked the foundations of many nonprofits: between the summer of 2008 and March 2009, the value of many institutional endowments declined between 20 and 50 percent. For organizations that have come to rely on significant revenue streams from interest on endowment, these losses proved detrimental to annual operations. Many newer endowed funds were "under water" – unable to support the original purpose of the endowment.

Even though many endowments have recouped some of these losses, making the case for endowment gifts has changed. The good news is that economic uncertainties have made it clear how important it is for major nonprofits to have money in the bank. A new emphasis on conservative resource management is here.

Making the case for endowment requires a financial plan now, more than ever. Income from endowment is no longer just "filling the gaps" funding. Carefully managed, it is one of the essential financial building blocks for a nonprofit. Endowment funding goals must be built through an assessment of the optimal capitalization of an organization and an evaluation of its priority program needs over time.

In tandem with a financial plan, organizations must provide even greater transparency about financial management so donors can see the totality of steps an institution is taking to stabilize its budget – cutting expenses, optimizing earned revenue, etc. – and how gifts to endowment can be part of that equation. There should also be up-to-date board-approved investment and spending policies to add credibility to an endowment fundraising effort.

The case for endowment can be more urgent now as nonprofits face serious financial challenges. For example, a university is likely to have an easier time raising scholarship support than endowed faculty chairs in the current environment. Rather than emphasizing prestige or competitive position, making the case for endowment today means talking about sustaining the institution’s ability to provide access and opportunity. Nonprofits must show how endowed gifts will impact those helped by their missions.

The business case and the philanthropic case for endowment should be made during cultivation and solicitation, but also through stewardship. Endowment donors, remember, are making the ultimate investment in the future of the organization. Now more than ever, donors need to understand the organization’s position – for better or for worse – understand the adjustments leadership is making to meet challenges, and see themselves as part of the long-term solution.

Schultz & Williams is a national consulting firm based in Philadelphia; providing management, fundraising and marketing consulting for nonprofit organizations, along with full-service direct marketing, database and creative/production services.