publication date: May 7, 2012
author/source: Brad Offman
What is an endowment? These days, says nonprofit investment
expert Brad Offman
, it's still the
organization's savings account-but that can mean almost anything that satisfies
the charity and the donor.
"I have no clue what an endowment agreement looks like in this new world," he told delegates to Being Good@Doing Good
, held in Toronto
in February. Gone is the requirement to hold an endowment for at least ten
years. A three-year spend is OK, Offman says, and so is a requirement for
perpetuity. It all comes down to your charity's agreement with the individual
And agreement is the key word. An existing agreement may be renegotiated,
he emphasizes, but it must never be violated. As an example, he cited a gift he
facilitated to support an endowed professorship. The university and the donor
renegotiated the agreement to allow the university to tap the capital of the
gift. With more money available, the university was able to hire the professor earlier,
serving the donor's purpose and the institution's needs sooner.
Pros and cons still
Even in this free, new world of endowment arrangements, some
principles still hold. The advantages of an endowment haven't changed. Ideally,
it ensures program continuity by offering a long-term cash flow. It smooths out
the peaks and valleys of traditional fundraising, creating a safety net and
decreasing fundraising costs. And it testifies to the charity's strength and
On the downside, an endowment gift can be a tougher sell for
many donors. They're aware that only a small portion of their donation supports
the cause in any given year. Watchdogs question the full tax break donors
receive even though the gift isn't fully used right away. Some donors and
prospects may believe that an organization with a healthy endowment has
sufficient funding without their support.
Most charities, Offman, explains, sit somewhere between
those two extremes. Those who succeed at endowment building make it a strategic
imperative supported by the board and the senior staff, and founded on
Bringing home the
Endowment fundraising is often synonymous with planned
giving or legacy fundraising, but Offman believes charities that integrate
legacy gifts into their existing fund development culture will benefit most.
The key, he says, is ongoing conversations with donors about how they can help
the organization most powerfully.
Charities that take an intentional road towards endowment
building should be very sure that an endowment is the best use of the
organization's capital. They will need a strong case for support, one that
highlights how an endowment will benefit the charity in ways that steady annual
fundraising can't. They must decide how the endowment will be funded; a campaign
and an allotment from every legacy are just two of many possibilities.
Patience essential in
grilled endowment sandwich
Developing an endowment is a lot like making a grilled
cheese sandwich, Offman concludes. With a healthy dose of time on your side, a
committed board is the bread, some senior staff support, the butter, and a
plateful of trained, accountable fundraisers, the cheese. "Be very patient," he
warns. "Wait for the bread to toast and the cheese to melt."
Brad Offman is the VP, strategic philanthropy,
at Mackenzie Investments.