Giving Compass' Take:

• Jeff Williams explores how foundations can increase annual spending and spend down endowment assets as a means of providing recovery funds for nonprofit organizations during this time. 

• What are other ways that funders are creatively supporting organizations facing challenges due to the pandemic? 

• Read how these philanthropists are unlocking capital through donor-advised funds. 

In our first two posts, we focused on risks facing nonprofits and their likely cash on hand, especially in Michigan, but with findings representative of nonprofits nationwide. In this third post, we pivot to looking at endowments as a resource for recovery.

By the term “endowments” we mean both the investment holdings of traditional foundations, and hybrid vehicles such as Donor Advised Funds (DAFs), agency funds held at community foundations, and even an individual nonprofit’s investment holdings if they primarily spend the earnings.

In the wake of COVID-19, there has been a lot of discussion — especially in the blogosphere — about foundations “digging deep” both by increasing annual spending and potentially spending down endowment assets.

There are several things to consider before an organization decides to dip further into its endowment:

Mission matters, now more than ever. Any endowment is held in service of a larger goal — which for foundations and nonprofits alike is the organizational mission. Look at your mission, then at the purposes of the endowment. If the endowment — and more importantly the spending from the endowment’s earnings — squarely supports the mission, then any decision to increase spending means you are doing more to support your mission, not posing an immediate threat to the mission. Conversely, if the endowment or the supported spending are not a solid fit with the mission, then you need to address that mismatch before you can have productive conversations about enhanced spending.

All endowments are not the same — so what type do you have? Endowments held by family foundations frequently have a small number of relatively targeted purposes within scope of their mission. They may also have living donors who may be able to readily adapt — or there may be a legacy that they feel bound to honor that would keep them from making changes.

Read the full article about foundation endowments for recovery by Jeff Williams at the Johnson Center.