Leave a Legacy – Establish an Endowment

April 8, 2019 - Legacies aren’t just for individuals.

If you work for a nonprofit organization that is striving to impact future generations, you’ll want to research and consider establishing an endowment fund.

An endowment fund is a donation of money or property to a nonprofit organization for the ongoing support of that organization. Ultimately, its goal is to create “intergenerational equity.” In other words, the manager seeks to balance the economic benefits of endowment assets between current and future constituents.

Typically, the principal of endowment is not utilized for annual operating funds. Instead, the principal is allowed to grow over time with only the earnings being withdrawn. The funds can only be used for the endowment’s initial purpose.

The Uniform Prudent Management of Institutional Funds Act, or UPMIFA, is an act that was adopted in 2006 to provide guidance on endowment management. According to GuideStar, the act sets standards for endowment spending and preservation of the original gift in accordance with the donor intent.

There are 3 key objectives of an endowment fund:

  1. Maximize total return with acceptable risk levels (achieved through investment policy, strategy and implementation).
  2. Provide a stable source of cash flow funding (distribution policy).
  3. Preserve purchasing power in perpetuity.

The long-term success of an endowment is determined by several factors including its investment return, its distribution, or spending policy, and inflation and expenses. There is a simple equation used to measure the success of a portfolio. The investment’s return should be greater than the combined total of the portfolio’s distributions, inflation and expenses.

At HighGround, we believe that the single largest factor in determining an endowment’s success is asset allocation. To learn more about our asset allocation process, read our blog, "Grow Your Investments Through Diversity."

If you think that an endowment is right for your nonprofit organization, reach out to one of our asset management experts today.