Non-profit endowment creation
Hi Friends,
I'm in the (very) early stages of creating a financial endowment fund for a small non-profit community organization I help out with. I feel they're a good fit for such an investment vehicle: their current revenue stream fluctuates a bit and many of their events rely heavily on attendance fees for funding, which is unrealistic when they attempt to cater to lower-income demographics. However, they have a relatively wealthy patronage that tends to remain involved for years or decades, and I believe they have the institutional stability to operate more complex financial instruments.
I pitched the idea of an endowment at a high level to the Chairwoman last week, and the Board is interested in moving forward. We haven't decided how exactly we want to structure the endowment yet: restricted endowment, quasi-endowment, etc. We also haven't determined exactly how much money we should fundraise for a principal investment, what our portfolio spread should look like, and how much of the annual interest we can afford to spend. (I have estimates, but they're not final.) I'm particularly interested in resources that can help the institution plan for inevitable economic downturns.
Has anyone here done this kind of work before? If so, would you be willing to chat about some of the nuances of organizing it, and/or do you have recommendations on reading material to help with the creation and maintenance of such a fund? We plan to receive consultations from an accountant and a lawyer, but I don't have much formal background in finance and would welcome any experience, advice, warnings, or external resources Tildesians can offer.
Thanks,
Atvelonis
I've been part of a number of fundraising and investment-seeking operations, as well as maintaining some organizations the derive most of their operating revenues from residual investment and would be happy to chat if you're interested. A few general points I'd like to make up front:
You absolutely want a restricted endowment, though it's very important to frame the restrictions properly. While the current board is presumably trustworthy and working in the organization's best interest, you can't be sure that'll be true forever. I work with an organization where a prior board sold off one of their largest assets at a discount, and it's been painful ever since. Restrictions on the use of funds for administrative costs are common and sensible, making sure that the wording is fairly open-ended within the relevant categories of maintenance or development are important to adapt to changing times.
You need more money than you think. Whatever your current thinking is? Double it again. If this is actually going to sustain them, there needs to be more than you think. The market will go sour, there'll be surprise expenses, someone will convince the board that moving half of it to a high-risk instrument will pay off, there'll be a great deal on the building next door if they pay cash now... they'll need more money, and you won't want to go back to the well of wealthy patrons more than once every ten years.
Unless you set up a yearly fundraising event. The classic is a yearly gala to fundraise, laud those wealthy patrons, thank them for their generosity, remind them to put you in their will in exchange for their name in the program, etc. A version of that tailored to your crowd can pay off, both in short term donations and in the long term presence in the wealthy donor's minds.
I'd be happy to chat further if you have specific questions.
Thank you for the reply and info! I'll send you a DM.