Interdependence – With Endowment Management and Fund Raising

Today’s volatile economic environment has placed a cloud of uncertainty in nearly every financial market. The impact of this uncertainty has a particular effect on the nonprofit community.

A recent report from the Giving USA Foundation, showed several startling trends between 2008 and 2010:

  • The two year total change in charitable giving, in current dollars, decreased by 3 percent.
  • The cumulative change in individual giving showed a decrease of 1 percent.
  • Foundation giving over the same two year period experienced a nominal decline of 2.9 percent.
  • Bequest giving, the most volatile sector of philanthropy, decreased by 27 percent. The only bright spot was giving by corporations increased by 23 percent.

It should be noted that of the total philanthropic enterprise of nearly $291 billion in charitable giving 5% or $15.2 million is estimated to come from the corporations.)

These overall numbers are in stark contrast to years of sustained increases.

Adding to the uncertainty for nonprofits is the lingering threat of changes in the charitable deduction, congressional determination of the IRA Rollover and restructuring of the federal tax code.

All of these factors foster an atmosphere which is not conducive to budgeting, planning and future fund raising. For those organizations which depend on governmental support, the reduction in funding and the uncertainty of the financial markets create even greater management challenges.

In fact many nonprofit organizations live on the edge of insolvency.

The only real revenue stream an organization can depend on is its own endowment. For years endowments were managed in near obscurity. Now, more organizations are dependent on their endowments and are eager to have them grow.

With what appears to be the leveling of charitable contributions, particularly with annual funds, endowments become the salvation.

Endowments become the focus for greater returns, improved performance and more gifts. As a result, the advancement staff is asked to raise more money for endowment purposes for which many are ill prepared.

There is interdependence between endowment performance and growing the endowment through new contributions.

There is an art and skill to major gift fund raising.

Major gift fund raising for an endowment requires knowledge and cooperation with the endowment management entity and the fund raising team. While there is not sufficient evidence of a trend, there seems to be a movement for endowment management to be administratively responsible to the fund raising department. Such a decision is dependent of the capabilities of those involved.

Recently, I made a proposal to a planned giving donor prospect for a Charitable Remainder Unitrust investment in the amount of $200,000. This is viewed as a major gift as contrasted to an annual gift. The donor was asked to make an investment in his alma mater. Since it is an investment and the donor’s name would be placed on the fund, he wanted to make sure the funds would be invested properly, that the people responsible for the portfolio were capable, that the fees for administration were appropriate and that his money and his name would be protected even 50 years from now.

A donor friend made exactly the same dollar contribution, $500,000, for a charitable remainder unitrust to two educational institutions on consecutive days. Two years later school one reported the asset value at $504,000 and school two had to report an asset value of $374,000. Since that time the advancement department has had little success is securing additional contributions from school two. There is interdependence between endowment management and fund raising.

What the above illustrations mean is that before you can grow an endowment through current  or planned gifts, there needs to be clear policies and performance experience in place for a donor to make an investment in your organization.

This carries over to planned gifts.

Charitable Remainder Unitrusts, Charitable Gift Annuities, Pooled Income Funds, Deferred Gift Annuities all involve investments in order to make scheduled payouts to the donors. Each instrument needs to be carefully designed to provide the donor the agreed upon income, yet maintain a healthy position in order to preserve maximum principal for the organization.

There is interdependence with performance, policies and the procurement of new endowment donors.