Establishing Long-Term Endowment Policies & Guidelines


Endowment funds provide long-term financial stability for any organization.

We understand that establishing long-term endowment policies and investment guidelines are crucial when creating a sustainable, profitable initiative for your organization.

As such, we’ve compiled a number of suggested investment policies and guidelines below that will provide you with the framework you need to strategically invest your organization’s assets, including:

  • Long-term goals
  • Asset mix strategy
  • Endowment spending policy, savings policy and gifting policy
  • Guidelines for security selection
  • Measurable objectives
  • Ongoing communication among the parties involved in the organization’s investment program

Long-Term Goals

In a broad sense, the long-term goals of each asset pool are to invest the assets through a diversified program of individual domestic stocks as well as institutional mutual funds for  international stocks, bonds, cash equivalents and alternative investments such as commodities and real estate. The preference is not to invade principal, so a sufficient level of liquidity is maintained to meet projected withdrawals without serious invasion of principal. This strategy enables the organization to properly plan and operate in a manner that provides consistency, which is imperative with a well-managed entity, especially in challenging economic times.

We believe in developing long-term goals, in concert with the organization, that are comprehensive and include all of the abovementioned framework policy items.

Asset Mix Strategy

The asset mix strategy for each asset pool is unique, as determined by the nature of the pool and the organization’s risk tolerance. Specifically, an organization’s “endowment” with a longer time horizon should have a higher equity exposure than a university scholarship fund which may need cash distributions each semester. An organization’s planned giving instrument portfolio would require a specific investment strategy depending on the nature of the instrument and the cash distribution requirements. A donor advised fund, of a community foundation, may have a long term strategy designed to grow and distribute funds at a later date. Also impacting the asset mix strategy are the goals and policies of the “organization’s endowment.”

Organization Endowment Spending Policy

Unless directed differently by donors or by board action, the spending policy of the organization’s managed endowment funds should be no more than five (5%) of the three year trailing average market value. This takes into account the total return of the portfolio, including dividends, interest, and appreciation. The manager will ensure that an adequate amount of liquidity is provided to ensure assets will not need to be liquidated in order to provide for the spending level. We see  this conservative approach as being in the best long-term interest of the organization. The decision, however, ultimately rests with the organization.

Organization Endowment Savings Policy

While organizations need to know how much they are going to withdraw (spend) each year, they also need to know how much of the endowment income are they going to save each year. The savings rate is equally important as the spending rate. Savings rates are developed individually with each organization. We believe a policy that directs one or two percent of the total return to be reinvested is a prudent approach.

Organization Endowment Gifting Policy

Often forgotten in the management of an endowment is the gifting rate. This rate literally means “how much does the organization need to raise” in order for the endowment to keep pace with the organization’s needs. If the organizational budget increases by 4%, how much more income will be needed from the endowment and therefore “what is the amount of new gifts to be required”?  We examine previous giving patterns and jointly, with the organization, determines realistic expectations for new gifts. These policies shall be reviewed bi-annually by the investment committee of the organization’s board of directors.

Guidelines for Security Selection

To provide for a well-diversified, high-quality investment program, the organization establishes a policy that restricts that no more than 5% (at cost) of the equity section of any portfolio may be invested in securities of any one company. The policy for fixed income is set at no more than 10% (at cost) of any offering, except for U.S Treasury and Agency obligations. The Fixed Income portion of the portfolio is to be highly diversified according to maturity, duration, sector, country and quality.

Asset Allocation

The organization prefers to maintain “blended” accounts of individual equities, equity funds and fixed income funds. Portfolio managers shall have latitude of maintaining an equity position of 35% to 70%. Within that latitude the portfolio manager may elect to have the following mixture of cap size funds:

  • Large Cap  35% to 75%
  • Mid Cap  0% to 15%
  • Small Cap  0% to 15%
  • Emerging Market Funds  0% to 10%
  • International Equities  0% to 15%
  • Real Estate Investments  0% to 10%

In structuring a portfolio asset allocation strategy, it is important to maintain a balance within the fixed income sector. The fixed income portion of the portfolio is to be highly diversified according to maturity, duration, sector, country and quality. Not more than 10% of a fixed income portfolio shall be invested in BAA bonds.

Measurable Objectives

To assess the value-added active management, specific measurable objectives are set for each manager. These objectives measure performance relative to appropriate market indices, inflation, other professionally managed portfolios, and specific goals unique to each investment style.

Ongoing Communications

As part of the ongoing communications and control of the organization’s assets, the statement of policy, guidelines and performance expectations defines the role of the organization, the custodian (where applicable) and the investment manager. Ongoing communication in the form of reports and analysis is essential to ensure the assets are prudently invested and that the basis is established for ongoing changes as may be needed.