[Editor’s note: This is the last of six articles examining endowment strategies by charitable organizations.]
By Todd Cohen
A growing number of community foundations are helping nonprofits launch endowments and planned-giving programs.
The Greater Kansas City Community Foundation provides nonprofits with planned-giving materials for donors and professional advisers, helps nonprofits search for development officers and offers workshops on topics ranging from strategic planning to giving techniques, says Laura McKnight, senior vice president for development.
Nonprofits, she says, should integrate planned giving into their overall development strategy.
“A lot of these organizations are good at annual giving,” she says. “But how can they infuse more complex giving into how they’re working with donors? Many haven’t had the time to deepen their relationship with their donors.”
Starting an endowment takes time, and nonprofits should move carefully, experts say.
A nonprofit typically is ready to begin an endowment or planned-giving program 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, says Holly Welch, vice president for development and legal affairs at the Foundation for the Carolinas in Charlotte, N.C.
To shore up its budget to prepare for planned giving, she says, nonprofits should cut or control expenses, team up with other groups, look for donated goods or services, and solicit help to strengthen internal operations.
Another key step, says Patrick Weiner, vice president for donor services and development at the Community Foundation of Greater Greensboro, also in North Carolina, is for the nonprofit’s staff to educate its board about the need for an endowment and the investment in staff or collaborations required to help launch it.
Nonprofits also must address policy questions ranging from who will be authorized to solicit gifts to the types of gifts they will solicit and how they will be invested, he says.
Another critical issue is management and board oversight of the endowment, says John Griswold, executive director of the Commonfund Institute in Wilton, Conn., which tracks endowments.
A growing number of foundations, operating charities and colleges and universities are contracting with outside firms to invest their endowment assets, says Griswold, whose organization is the research and publication arm of the Commonfund Group, which manages nearly $30 billion in assets for 1,600 educational institutions, foundations, hospitals and operating charities.
While nonprofit boards retain fiduciary responsibility for their endowments, he says, they and their staffs often lack financial expertise.
“The task of the board and its investment committee should be to oversee outsourced managers,” whose tasks should range from helping the board develop and set investment policies to tracking market trends and measuring the performance of their investments against the market, he says.
Boards also should include experienced investment or financial-services professionals, he says.
Donors also face key questions in setting up endowments, says Virginia Espositio, president of the National Center for Family Philanthropy in Washington, D.C.
Those questions include defining the endowment’s mission, deciding how long it should exist, shaping its leadership and selecting a charitable vehicle, says Esposito, whose group recently published a guide to creating family foundations.
“There’s a lot more awareness on the donors’ part,” she says, “of all the options they have for giving.”