The Math Of Endowments: Using Philanthropy To Invest In The Future
posted June 6, 2016.
Originally published in the Traverse City Business News
Last fall, I had occasion to speak with a local reporter about the Community Foundation and our endowments. Several times I spoke about the forever impact of endowment, that we would be benefiting generations to come, the perpetuity of the giving that created the endowment. Eventually – well into our conversation – the reporter stopped me and said something to the effect of – “you say ‘forever,’ but that’s just hyperbole, right?”
The math of endowment giving is part of our daily work at the Community Foundation, but it isn’t something that most of us consider on a regular basis. Yet, there is great power, great opportunity that an endowment affords.
What, for example, if you could make a gift today and that gift would allow for annual grants to a cause or causes you care about next year, the next, the next, and so on? What if, in 20 years, that gift had provided an equal amount in grant awards to area nonprofit organizations AND the original gift amount would remain to continue to support the causes you love over and over in perpetuity? You might ask yourself, what kind of math is this… give it away, give it away again, and keep giving it away throughout your lifetime and beyond?
Whether it makes intuitive sense or not, this is exactly how the power of an endowment at your Community Foundation plays out.
An endowment, by definition, is a fund that holds its principal in perpetuity and pays out a small portion each year. Endowment investments are structured with two goals: to maintain and grow the initial gift as well as to generate earnings to support annual grants.
At your Community Foundation, we offer the opportunity for long-term giving in the community and we ensure your gift is sustainable and ongoing for generations. We are able to do this by engaging an experienced and effective staff and board of directors, who, together, employ strategic, efficient asset investment and precise distribution of grant awards.
Over our nearly 25-year history, our investment returns have averaged six percent annually. On the grantmaking side, our guidelines allow for granting of four percent of our endowment balances, averaged over a 12 quarter look back. In both cases, our investment and grantmaking strategies are balanced for risk and earnings – with a keen eye to ensuring that the community benefit donors entrust to us is accomplished now and for generations to come.
So what does this math look like – how does it play out in reality? Take an example. In 1996, a couple gave a $1 million gift to the Community Foundation to create a designated endowment for causes close to their heart. Over nearly 20 years, that gift has helped support our ability to award a little more than $1 million in grants to nonprofit organizations in our communities. And the result of this endowment math – $1 million given, $1 million granted, and $1.1 million is in the endowment today.
And the beauty of this math, of endowment, and of the Community Foundation is that gifts large and small make a meaningful difference within our structure. Whether an endowment is created with a single, large gift from a single donor or many gifts of all sizes from many donors, the math still works. Giving to the Community Foundation supports giving back within communities again, and again and again.
Together with our donors we are building resources for our community now and to exist in perpetuity. We are transcending the hyperbole and living in the reality of what it’s like to give it forward, to give to the future, and to give at the foundation of the community to ensure our gifts grow and impact lives now and for generations to come.
ABOUT THE AUTHOR
Phil Ellis, Ph.D., Community Foundation Executive Director
e: firstname.lastname@example.org | p: 231-935-4066