An endowment can be an essential financial pillar for nonprofits and institutions. A properly administered endowment, alongside an understanding of fiduciary requirements, will help properly maintain the corpus and contribute to an endowment’s long-term growth.

Well-managed endowments support the long-term sustainability of an organization and can:

• Strengthen future planning by allowing a nonprofit to invest resources for growth and strategically plan for the long term based on known funding.
• Provide protection from changes in donor behavior by offering continued funding during times of donor attrition, especially as demographics or donor attitudes may change.
• Protect organizations during economic volatility by providing a relatively secure and reliable source of revenue, strengthening a nonprofit’s long-term viability.
• Foster creativity, innovation and boldness among organizational leadership in meeting future costs and providing the flexibility to innovate.

Although a well-managed endowment can provide investment returns that grow the fund and provide income for an organization’s programs and operations, it is important to remember that investment returns are subject to market volatility. 2022 was unique in that for only the fourth time in history, both stocks and bonds generated negative returns in a calendar year. This was caused in large part by the Federal Reserve’s efforts to rein in inflation following more than a decade of highly accommodative monetary policy. This environment reinforced the need for effective diversification and maintaining a focus on an endowment’s long-term goals.

One component of a well-managed endowment is a strong internal team, whether the organization manages the endowment in-house or engages the services of an Outsourced Chief Investment Officer (OCIO) like Glenmede. Spanning our decades of experience working with endowment clients, we have observed several characteristics that define an effective and successful endowment team.

 Strong, Dedicated Leadership

 Investment committee level

Effective leadership starts with a strong investment committee, which is charged with investing an endowment’s assets to help sustain its viability long term, typically in perpetuity. Among its other duties, the committee usually:

• Creates and maintains the Investment Policy Statement (IPS), which governs how the endowment’s assets should be invested for the long term.
• Develops an appropriate spending policy.
• Provides an annual report to the Board on the state of the endowment.
• Is responsible for selecting and hiring investment managers and monitoring their activity.

A strong investment committee has dedicated leaders, with an effective chairperson who contributes to the committee’s success. The chairperson manages productive meetings; communicates effectively with members, the Board and staff; and works closely with the investment manager(s) retained by the committee to identify areas of interest and specific concerns or questions for the committee to discuss.

Investment committees should include members with a breadth of knowledge in their skill sets, experiences and interest in the organization, while understanding the organization’s long-term goals and funding needs. Committees should discuss the level of experience and investment knowledge members need to carry out their duties. Research has shown that investment committees of five to nine members operate most efficiently, as this number allows for diverse thinking but is agile enough to make effective decisions.

Investment manager selection

Although some organizations elect to manage their investment assets in-house or with the help of an investment consultant, many investment committees often engage an asset manager or OCIO to take over the day-to-day management of an endowment pool so they can dedicate more time to — and focus on — their organization’s strategy and mission. With an OCIO, accountability and fiduciary responsibilities can be clearly defined at the outset, including through the creation of the IPS. Further, transparency into investments, including performance results and the fees paid, helps the organization fulfill its fiduciary duties. OCIOs are often well positioned to provide educational resources to investment committees.

The partial or full outsourcing of an organization’s investment function to an asset manager or other third party can help achieve:

• Portfolio performance and asset growth for the long term.
• Robust risk control and fee transparency.
• Flexibility to implement timely tactical investment decisions.
• Compensation for a lack of internal resource.

Finely tuned and directed communications

Do not assume donors know how their gifts will make an impact. Apprise donors when their contributed dollars begin funding portions of the organization, and clearly articulate the benefits of supporting the endowment.

• Donors can demonstrate their commitment to an organization’s mission and vision by providing financial support to enable the organization’s long-term stability.
• Depending on the type of gift, endowment contributions can generate tax benefits for the donor.
• Endowment assets that are responsibly invested and well stewarded can help a donor’s funds to support an organization in perpetuity.

If an organization is working with an OCIO like Glenmede, we can provide donors, advisors and prospects with information about Glenmede to help them feel confident their philanthropic investments will be well managed. This process can manifest through written communications, personal consultations, educational workshops and targeted seminars.

Importance of a Donor Development Team

In a volatile economic environment where donor dollars are stretched and many endowments are experiencing slow growth rates, a targeted, planned giving strategy could make a difference. A planned gift can be made to an endowment in a donor’s lifetime or as a bequest as part of a donor’s overall financial and estate planning. There are many kinds of planned gifts, including, but not limited to, bequests in a will or trust, beneficiary designations, charitable gift annuities, charitable remainder trusts and charitable lead trusts. Depending on an organization’s gift policy, endowments may be able to accept different types of assets, including land, stock, art, real estate, business interests, cryptocurrency and life insurance.

An endowment’s fundraising efforts should focus on strengthening donor relationships, understanding the donor base, maintaining donor stewardship and developing additional gifts. Motivations behind gifting can vary among individuals and families, whether seeking to create a legacy, looking for endowments that reflect donors’ core values or incorporating planned giving into their estate plans.

Many organizations form a legacy society for donors who have indicated they will leave a gift to an organization in their will. A legacy society can help solidify a planned giving marketing strategy by giving donors the added incentive they need to leave a bequest to an organization. There is typically no minimum gift amount to join, and planned or deferred gifts can be in the form of a will, life insurance policy, gift annuity or trust.

Depending on the scope of an organization’s planned giving options and the level of administration needed, it can be helpful to work with an outside advisor like Glenmede that can offer comprehensive administrative solutions to balance payout needs with the long-term goal of benefiting the organization as gifts mature.

How an Investment Committee Works with an OCIO

 The Investment Committee may create the RFP for the OCIO search, review the RFP responses, select the finalists and conduct the interview process. The goal is to identify an OCIO provider that can accomplish an organization’s near-term needs and provide education on topics like mission-aligned investing or private investments.

Once the selection committee has made its recommendation and the Investment Committee approves an OCIO provider, an organization is ready to begin its OCIO journey. The committee should work to fulfill their responsibilities as delineated in the IPS, monitoring the activity of the chosen OCIO, tracking progress toward long-term goals and periodically revisiting the process.

Case Study: Working with Donors

 Glenmede partnered with a client in securing a large bequest to their endowment fund. When the donor was contemplating the gift to the organization, the client asked us to meet with the donor to discuss, among other things, our investment process, the dedicated Endowment & Foundation team serving the organization, how the organization’s endowment assets are invested and how we would develop an appropriate investment plan for this new gift based on our understanding of its specific goals and objectives. We also provided projections for the growth of the proposed gift over time and the expected payout for the charitable purposes intended.

For more information please contact your Relationship Manager or email Glenmede’s Endowment & Foundation Relationship Management Team at EFSolutions@glenmede.com.