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Endowments touted for stability

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By Todd Cohen

CHARLOTTE, N.C. — While it can make fundraising tougher, the sluggish economy also underscores the urgency for many nonprofits to gear up for the future, charitable experts say.

Some nonprofits simply are struggling to operate, they say, and may not be ready for endowments or planned-giving programs, which can tap wealth being transferred between generations, and generate income to support programs and operations.

“An endowment can help ensure the viability of your organization,” says Holly Welch, vice president for development and legal affairs at the $240 million-asset Foundation for the Carolinas in Charlotte.

Historical trends show long-term investments pay off, says Phillips M. Bragg, a principal at Bragg Financial Advisors, a wealth-management firm specializing in charitable planning.

“Many nonprofits are understandably concerned that their donor base is getting poorer and, as a result, the future dollars they might expect to receive are declining,” he says. “But this period we’re going through will likely be followed by a recovery.”

Since 1926, counting bull and bear markets, the average return on stock has been 10 percent, says Bragg.

So instead of panicking, nonprofits with endowments should invest for the long-term, says Welch, who with Bragg was asked by the Charlotte chapter of the Association of Fundraising Professionals to advise members on weathering the economic downturn.

“It would be a travesty to move heavily out of equities and then miss the rise,” Welch says.

The foundation, which works with 158 local nonprofits on planning and managing their endowments and planned gifts, generally recommends they put 70 percent of assets in equities and 30 percent in fixed-income investments – mixing large-cap and small-cap funds, growth and value funds, and domestic and international funds.

Nonprofits without endowments or planned-giving programs should start planning for them, she says, noting that researchers at Boston College expect at least $6 trillion will go to charity over the next 50 years through a huge transfer of wealth between generations.

“You need to jump on the wealth-transfer train,” she says. “And the only way to get on that train is to have a seat to put your bequests and gifts.”

A nonprofit generally is ready to launch an endowment or planned-giving effort if it has operated for 10 years, meets its budget, has a stable board and staff, and has built reserves equal to at least one-fourth of its budget, Welch says.

To bolster finances to prepare for planned giving, she says, nonprofits should cut or control expenses, collaborate with other groups, look for in-kind donations, and seek support to strengthen internal operations.

While the foundation does help nonprofits raise money, it advises them on developing planned-giving programs, helps them assemble their planned-giving teams, assists their finance or investment committees, sits in on visits with donors to help structure complex gifts and, if asked, manages the gifts.

“In times like this,” she says, “you need a strategic plan, long-term goals and, if possible, a nice soft cushion.”

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