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Best Practices in Managing a Nonprofit Endowment Fund

By: David Goldner

I had the opportunity to lead a roundtable discussion, “Responsibilities In Managing a Nonprofit Endowment,” at Maryland Nonprofits’ annual conference. Attendees, who were board members and staff of nonprofit organizations, were looking for insight into the crucial task of endowment fund management.

Here’s a summary of key points at the roundtable discussion.

An Endowment Fund Policy Statement Is Critical

The most important thing I hope attendees took away from the discussion is that a clear endowment fund policy statement can head off most issues that might arise.

The endowment fund policy statement should clarify the role of the endowment in supporting the mission of the organization and fortifying the finances of the organization.

It should also state how much of the endowment will be used to support the organization’s current activities, how much in gifts received by the organization will be used to fortify the endowment, overall investment strategy and asset allocations, and who is responsible for investment decisions.

Investments and Distributions Are a Challenging Aspect of Endowment Fund Management

Determining the amount of distributions is a complicated issue for the board of directors to tackle. The investment policy statement can help clarify the organization’s goals. The right investment mix for you is based on the fund’s long term goals, but the most important action is for the fund manager to stay consistent on investment policy so they don’t get whipsawed by volatile markets.

Getting Off On the Right Foot Is Key

There are five key principles to follow in setting up and managing an endowment: like most things in business, an endowment will be most successful when it’s well thought out, with a long term plan in place.

  1. Determining the objectives of the endowment

  2. Setting up a payout policy from the endowment

  3. Determining an optimum asset allocation

  4. Selecting managers to implement your asset allocation

  5. Providing for systematic review of risks, monitoring the costs and determining the forum for oversight

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Published November 11, 2014

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