As a foundation leader and fan of nonprofit endowments, I wasn’t surprised to read CEP’s recent findings that less than a third of foundations grant to endowments.

The CEP report, an examination of the prevalence of and approach to endowment funding, includes ardent and compelling voices calling for a philosophical shift in philanthropy to embrace endowments as an approach to greater power sharing with communities. In theory I like the idea. But in practice I think there’s a more productive path forward that better positions both foundations and nonprofits to promote power through sustainability and autonomy.

This perspective is informed by a decade at a grant-funded, non-endowed nonprofit, followed by a decade at an endowed community foundation where we helped other groups grow endowments, and most recently at an endowed foundation that does not support other endowments. Before I apply these accumulated perspectives to CEP’s findings, I’d like to add to ongoing myth-busting conversations concerning nonprofits and endowment:

  • Complexity and scale shouldn’t deter endowment fundraising. This is a challenge that already has a solution: Community foundations’ service regions cover most of America, and they exist to aggregate multiple community endowments to achieve investing scale and centrally manage investing complexity.
  • Small nonprofits can handle big gifts. While this concept has failed the commonsense test for years, CEP’s recent examinations of Mackenzie Scott’s giving hopefully puts this myth to bed once and for all.

When it comes to the specific question of foundation support for endowments, it’s important that we set the right expectations:

  • Endowments are power… sometimes: I can affirm first-hand that unrestricted endowments do confer power to community organizations. However, restricted use endowments are common and sometimes represent a permanent imposition of donor control, rather than an act of liberation. I have encountered many restricted-use endowed funds that were established with the best intentions decades ago, but in the present day represent a constraint on organizational autonomy. Certain scholarship funds and programmatic endowments are the two most common examples. If our goal is equity and power-sharing, we need to narrow our conversation to unrestricted or minimally restricted permanent endowments.
  • Donor intent matters: Love it or hate it, donor intent is a bedrock legal and ethical principle in U.S. philanthropy. The donor intent behind the establishment of some foundations can limit or prohibit giving to permanent endowments (as it does with my institution, the Michigan Health Endowment Fund). Whether or not one agrees with this outcome, it’s prevalent enough to narrow the potential pool of grant funding for endowments.
  • Scale is essential: As observed in the CEP report’s supporting articles, endowment giving requires scale — every $100,000 in gifts produces roughly $5,000 of recurring annual income. Put another way, even a million-dollar endowment gift is in most cases insufficient to sustain a single full-time staff position. A majority of foundations lack the six-figure grantmaking scale needed to catalyze significant endowment growth.
  • Time value of money is debatable: There is a fair and ongoing debate over weighing the present value of a grant vs. its future value through permanent endowment. While I believe that the total value of an endowed gift eventually exceeds the impact that gift could make if spent immediately, it’s a perfectly legitimate and arguably equitable philosophy for foundations to value present-day impact over future distributions.

Do these limiting factors excuse foundations from the conversation? Not at all. If we broaden the conversation from endowments to examining sustainability, the path toward more empowering practices becomes clearer and more pressing.

Read the full article about sustainability and autonomy by Neel Hajra at The Center for Effective Philanthropy.