Endowments

It may be hard to justify diverting money from programs to start an endowment. There is, however, another way to look at endowments: as part of good financial planning that ensures that an organization will be around in the future to carry out its mission. Here is a five-step plan that a smaller nonprofit can use to create an endowment — and put itself on solid financial footing.

College endowments rebounded in the 2013 fiscal year, with an average increase in value of 11.7 percent over a year earlier, according to the NACUBO-Commonfund Study of Endowments benchmark survey. The increase was in stark contrast with 2012, when their average values fell by 0.3 percent. The annual survey is compiled jointly by the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute, the education and research arm of the Commonfund, an institutional-investment firm.

Donors may increasingly understand the case for support of endowments, but it's incumbent upon nonprofits to clearly communicate how such funds will be used and the type of endowment(s) donors are giving to, said Gregory Schupra, vice president and group manager of Comerica Charitable Services Group.

Organizations "need to create this menu of endowment opportunities that will define for a donor the organization's long-term need for endowment support."

Should you build an endowment? Well, there is little debate that you should set aside money for a rainy day — a cash reserve that can help to smooth out the ups and downs in your operations. Just as investment advisors recommend that individuals have six months of emergency funds tucked away in a savings account, nonprofits should also strive to have cash on hand to hedge against uncertainty. This isn’t endowment, or even quasi-endowment.

Preliminary data gathered from 463 U.S. colleges and universities for the 2012 NACUBO-Commonfund Study of Endowments (NCSE) indicate that these institutions’ endowments returned an average of -0.3 percent (net of fees) for the 2012 fiscal year (July 1, 2011 – June 30, 2012). The preliminary FY2012 return was down sharply from the FY2011 average return of 19.2 percent.

It is expected that more than 800 institutions of higher education will participate in the NCSE by the time data collection and analysis are complete.

The University of California, Los Angeles endowment has grown the fastest among U.S. colleges since 2008 as markets recovered and gifts from philanthropists such as casino mogul Kirk Kerkorian surged.

UCLA’s endowment size increased an average 12.3 percent annually to $1.49 billion in the three years through 2011, almost double the 6.5 percent growth of Washington and Lee University, the next best performer, according to data compiled by Bloomberg. By contrast, the endowment at Harvard University, the world’s richest college, shrank 3.7 percent to $31.7 billion.

College and university endowments made gains in the fiscal year that ended in June, but many are still struggling to make up ground they lost in 2008 and 2009, according to a report released Tuesday. Data gathered from 823 U.S. colleges and universities show that the institutions' endowments returned an average of 19.2 percent for the 2011 fiscal year, the National Association of College and University Business Officers and Commonfund said. That's up from 11.9 percent in fiscal year 2010.

As a decorated war veteran, the late Colonel James L. Draper Jr.'s final — and perhaps grandest — act of charity came in the form of The Draper Foundation Fund, a $30-million endowment entrusted to The Community Foundation of Northwest Connecticut. The new fund, which represents the largest single gift in the Foundation’s history, will benefit mainly local charitable organizations by making yearly awards to 19 nonprofits named by the Drapers, as well as through annual discretionary grants.

Colleges and universities in the U.S. earned an average of 19.8 percent on their endowments in the fiscal year ended June 30, 2011, continuing a post-recession rebound that began in fiscal 2010, preliminary data from 284 schools show.

But that strong posting was not enough to push endowments to their pre-recession levels and barely lifted five- and 10-year average returns above the average effective spending rate of 4.3 percent, says the report from Communfund Institute and the National Association of College and University Business Officers.

The endowments of 284 U.S. colleges and universities returned an average of 19.8 percent (net of fees) in the fiscal year that ended June 30, 2011, a new report from the Commonfund Institute finds.

Conducted in partnership with the National Association of College and University Business Officers, the 2011 NACUBO-Commonfund Study of Endowments found that the highest-performing endowment in FY2011 returned 31.8 percent while the lowest returned 3.7 percent.