As a basis chief and fan of nonprofit endowments, I wasn’t shocked to learn CEP’s current findings that lower than a 3rd of foundations grant to endowments.
The CEP report, an examination of the prevalence of and method to endowment funding, contains ardent and compelling voices calling for a philosophical shift in philanthropy to embrace endowments as an method to higher energy sharing with communities. In concept I like the concept. However in apply I feel there’s a extra productive path ahead that higher positions each foundations and nonprofits to advertise energy via sustainability and autonomy.
This attitude is knowledgeable by a decade at a grant-funded, non-endowed nonprofit, adopted by a decade at an endowed group basis the place we helped different teams develop endowments, and most not too long ago at an endowed basis that doesn’t assist different endowments. Earlier than I apply these gathered views to CEP’s findings, I’d like so as to add to ongoing myth-busting conversations regarding nonprofits and endowment:
- Complexity and scale shouldn’t deter endowment fundraising. This can be a problem that already has an answer: Group foundations’ service areas cowl most of America, they usually exist to mixture a number of group endowments to attain investing scale and centrally handle investing complexity.
- Small nonprofits can deal with huge presents. Whereas this idea has failed the commonsense check for years, CEP’s current examinations of Mackenzie Scott’s giving hopefully places this delusion to mattress as soon as and for all.
On the subject of the precise query of basis assist for endowments, it’s necessary that we set the correct expectations:
- Endowments are energy… typically: I can affirm first-hand that unrestricted endowments do confer energy to group organizations. Nonetheless, restricted use endowments are widespread and typically symbolize a everlasting imposition of donor management, quite than an act of liberation. I’ve encountered many restricted-use endowed funds that had been established with the very best intentions many years in the past, however within the current day symbolize a constraint on organizational autonomy. Sure scholarship funds and programmatic endowments are the 2 commonest examples. If our purpose is fairness and power-sharing, we have to slim our dialog to unrestricted or minimally restricted everlasting endowments.
- Donor intent issues: Like it or hate it, donor intent is a bedrock authorized and moral precept in U.S. philanthropy. The donor intent behind the institution of some foundations can restrict or prohibit giving to everlasting endowments (because it does with my establishment, the Michigan Well being Endowment Fund). Whether or not or not one agrees with this final result, it’s prevalent sufficient to slim the potential pool of grant funding for endowments.
- Scale is important: As noticed within the CEP report’s supporting articles, endowment giving requires scale — each $100,000 in presents produces roughly $5,000 of recurring annual revenue. Put one other approach, even a million-dollar endowment reward is generally inadequate to maintain a single full-time employees place. A majority of foundations lack the six-figure grantmaking scale wanted to catalyze important endowment progress.
- Time worth of cash is debatable: There’s a honest and ongoing debate over weighing the current worth of a grant vs. its future worth via everlasting endowment. Whereas I imagine that the whole worth of an endowed reward ultimately exceeds the affect that reward might make if spent instantly, it’s a superbly reputable and arguably equitable philosophy for foundations to worth present-day affect over future distributions.
Do these limiting elements excuse foundations from the dialog? In no way. If we broaden the dialog from endowments to inspecting sustainability, the trail towards extra empowering practices turns into clearer and extra urgent.
Sustainability is Energy
Foundations ought to incorporate concerns of endowment assist into the broader challenge of supporting sustainability. We all know that sustainable organizations are more likely to exhibit daring management in service of equitable outcomes. Basis assist of sustainability can are available in many kinds, all of which leverage each other (I view these approaches as a set quite than a development — the extra the higher). On the Michigan Well being Endowment Fund, we’ve pursued this via grantmaking practices and non-grant actions together with:
- Reevaluating oblique price reimbursements for program grants (after a CEP-led survey of grantseekers, we not too long ago established a 30 p.c oblique price for small and medium-sized group organizations).
- Capability constructing assist to bolster nonprofits’ fundraising capability.
- Buying fundraising consulting providers and different infrastructure helps in bulk to share with group organizations.
- Regularly refining our grant utility and post-grant reporting processes to scale back time burdens on nonprofits to extend the online worth of every grant.
- Investing grant {dollars}, technical help, and reputational fairness in work that may be sustained or scaled via alternate funding sources — and committing to working alongside grantees to make it occur.
Foundations also can bolster nonprofit sustainability by funding money reserves, funding capital initiatives (at a earlier group our debt-free constructing served as an endowment of kinds), and crucial sustainability device of all, unrestricted giving (working assist). Which brings us to the chance to empower organizations via selection.
Alternative is Energy
The final rule of thumb for attaining fairness is that foundations ought to develop mutual belief with nonprofit leaders to maximise the equitable affect of grants. With that in thoughts, I imagine that working assist is a vital device for conferring energy to group organizations. I’d choose for nonprofit leaders to resolve the right way to allocate a grant between present wants and endowment quite than make that selection for them. The CEP report notes that this rationale is without doubt one of the prime causes cited for why foundations select to not assist endowments — they need to promote grantee autonomy.
There’s one other function for foundations’ assist for endowments, and that’s to assist nonprofits faucet right into a a lot bigger funding supply for endowment progress.
Go The place the Cash Is
My perception is that foundations usually get extra consideration than we deserve due to our concentrated wealth, outstanding voices, and advertising and marketing capability — in that respect, endowments are certainly energy. Nonetheless, this fixation comes with a possibility price: foundations solely symbolize 22 p.c of U.S. giving and, as mentioned above, a whole lot of that giving can’t or gained’t be re-directed to endowments.
However, particular person donors drive practically three quarters of whole annual U.S. philanthropy — they’re the proverbial 800-pound philanthropic gorilla. Past their huge annual giving, the continuing intergenerational switch of wealth ($84 trillion anticipated to switch by 2045) has potential to drive funding in nonprofit endowments at a scale that makes basis outputs appear miniscule.
In reality, if the social sector might re-direct only one p.c extra of particular person property transfers to nonprofit endowments over the following twenty years, that output would vastly exceed the whole potential for foundations to extend their assist for endowments. Tying this to sustainability, foundations must be enabling nonprofits — whether or not via direct grant assist, capability constructing instruments, or entry to new platforms — to determine the staffing, instruments, and networks they should interact in main presents and (most necessary for endowment progress) deliberate giving.
Foundations can and may do extra to confer autonomy and energy to grantees. Nonetheless, quite than encouraging nonprofits to hunt incremental progress via basis grants to endowments, a way more productive (and doubtlessly transformational) path ahead is for foundations to double-down on commitments to sustainability, belief, and enabling entry to main and deliberate giving. These inter-connected approaches are the very best potential avenues to extend nonprofit energy via sustainability and the higher equitable outcomes that might observe.
Neel Hajra is chief government officer of the Michigan Well being Endowment Fund. Discover him on LinkedIn.
