For nonprofits with endowments, managing these major restricted funds can be a big step in your career. Strong endowment stewardship demonstrates your abilities related to managing finances, strengthening donor trust, and following complex legal regulations. However, once a generational gift hits your endowment portfolio, your work has just begun. It’s now up to you to honor donor intent while meeting the long-term needs of your organization.
Turning this financial responsibility into a lasting impact requires strong communication, strict compliance, and strategic alignment with your mission. In this article, we’ll explore five strategies for managing your nonprofit’s endowment.
Grasp the Core Components of Nonprofit Endowment Management
Whether you’re securing gifts for an endowment or directly overseeing one, you need to know the essentials of restricted funding. With this knowledge, you can better communicate donors’ giving options to them and reassure them that their intent for gifts will be honored.
As you get started with endowment management, you’ll need to know the difference between restricted funds bound by specific donor agreements and unrestricted funds, which can be spent at your nonprofit’s discretion. Additionally, there are two types of restricted endowments to be aware of:
- True endowments hold the principal amount in perpetuity, with only the investment income ever being spent on specific, donor-designated projects or initiatives
- Term endowments function like true endowments until a specific date passes or event occurs, after which, your organization gains access to the principal
To ensure you properly understand what type of endowment your nonprofit has, take these measures to build your financial literacy:
- Study legal guidelines. Schedule 30 minutes on your calendar this week to read up on regulations under your state’s Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA covers best practices for managing an endowment, as well as outlining legal regulations your nonprofit is expected to follow.
- Review your organization's investment policy. As part of UPMIFA, your nonprofit should already have an investment policy ready. This document outlines how and why your nonprofit will make endowment investing decisions, your risk management policy, and your process for managing and assessing your investments. Request your organization's investment policy statement today and study it to ensure you understand the ins and outs of your current endowment strategy.
- Familiarize yourself with the past performance of your organization’s pooled investments. Knowing your five-year average return rate lets you set realistic expectations when discussing probable returns on investments with donors during the solicitation phase. Setting accurate baseline metrics early saves you from having to backpedal later if your actual returns fall short.
Effective stewardship begins with a deep understanding of the fund you’re managing. Taking the time to learn about endowment management upfront creates a path for confident decision-making down the line.
Advocate for Ethical Fundraising Practices
Responsible endowment management requires ethical fundraising. To secure major gifts and build lasting donor relationships, you’ll need to demonstrate your professionalism by maintaining transparency and always honoring donor intent.
When you accept a restricted gift, you make a binding commitment to the donor to execute their vision. Managing their gifts with integrity helps you build trust with the donor and stay compliant, protecting your organization from reputational damage and legal scrutiny.
You can take a proactive approach to following donor intent with these best practices:
- Look through recent gift agreements. Pull three of your organization’s gift agreements and cross-reference them with current spending reports to ensure all gifts are being spent according to donor intent.
- Standardize variance power clauses. A variance power clause allows your nonprofit to change the terms of donor-restricted funds in the event that following the donor’s original intent is no longer feasible. Work with your legal team this quarter to draft standard variance power clauses for all new gift agreements, which will legally protect your organization if you ever need to alter a gift’s restrictions. This helps your organization continue to make an impact where it matters most without ever making changes behind donors’ backs.
- Build a standardized checklist for gift agreements. While you will offer every donor a unique pitch based on their relationship with your nonprofit, you should have a standard gift agreement contract that ensures donors understand how their gifts will be used. After drafting this document, get both your development and finance teams to sign off on it before sharing it with the donor. This internal alignment should set clear expectations for both donors and your nonprofit’s team.
Aligning your fundraising promises with your nonprofit’s financial realities helps build trust in your organization. Standardizing endowment agreements and outlining ethical fund management practices provides your team with a roadmap to accept generational contributions and honor your supporters’ intentions.
Use Technology to Centralize Fund Tracking
Managing complex investment portfolios requires modern infrastructure. Relying on manual data entry and disconnected spreadsheets can introduce errors and create blind spots when allocating funding. Fortunately, dedicated technology can help everyone involved with managing your nonprofit’s endowment stay on the same page.
Replacing manual tracking with endowment accounting software eliminates the risk of overspending, prevents funds misallocation, and creates a secure source of truth for both donor records and financial data.
Take these steps to modernize your data management:
- Digitize your documentation. Dedicate an afternoon to scanning and uploading all physical gift agreements into your CRM, and tag them by restriction type as soon as you put them in the system. An integrated endowment management system should automatically sync this information from your CRM, saving you the effort of a manual data migration.
- Automate compliance reporting. Set up automated monthly reports that alert your team when a fund's available balance falls below a defined threshold.
- Add user permissions. Ensure everyone accessing your endowment has appropriate permission levels. For example, fundraisers should have view-only access so they can get the information they need from donor records without being able to accidentally change how gifts are being invested. Having visibility into your endowment lets fundraisers have informed conversations with donors without needing to go back to the finance department for updates.
Automating your systems allows your organization to manage complex funds with minimal errors. Your financial data stays accurate and secure, giving fundraisers the details they need without adding to your finance team's workload.
Master Transparent Donor Reporting
Donors who contribute to endowments expect accurate reporting on their gifts. Clear communication about financial performance in both impact reports and annual overviews helps build relationships, which can lead to future gifts.
Upgrade your stewardship processes by:
- Creating an endowment report template. Design a template for all endowment reports that lists the fund's starting balance, investment gains, administrative fees, and the specific programmatic impact of disbursed funds. Additionally, add space in your template for useful visuals that help illustrate data, stories from beneficiaries affected by the endowment, and any other information you think would be useful to share with your donors.
- Scheduling periodic financial reviews. Book recurring quarterly and annual meetings with major donors to review their gifts’ financial performance, making them feel like valued stakeholders.
- Incorporating direct quotes from beneficiaries. Add a human touch to your reports by featuring quotes from the people positively impacted by the endowment. These statements help contextualize your data and can deepen donors’ connections to your mission.
Keep up the momentum after you secure a gift toward your nonprofit’s endowment. Engaging, transparent updates invite donors into your progress and help keep them eager to support future initiatives.
Prioritize Your Professional Development
Managing an endowment requires staying updated on new laws and investment strategies. When you’re armed with relevant, up-to-date knowledge, you can make smart investments and protect your nonprofit from compliance risks.
You can help your nonprofit and your career by taking steps to deepen your understanding of endowments and financial management in general. Seek out educational opportunities by:
- Establishing a peer review group. Start a monthly lunch-and-learn with colleagues from your nonprofit or other local organizations to discuss complex gift scenarios, share policy templates, and review sector-wide changes.
- Pursuing formal credentials. Identify one advanced finance or endowment-related course or certification process to enroll in this quarter, and submit a formal budget request for it to your leadership team by the end of the week.
- Reading publications on financial management. Learn from experts both in and outside the nonprofit sector by regularly reading reputable articles about financial management trends and best practices. Seeing the bigger picture helps you speak the same language as your donors' financial advisors, empowering you to engage in more complex conversations and answer their questions with ease.
Keeping your finger on the pulse of the nonprofit sector helps you make strategic decisions to advance your career while securing your organization’s future.
Understanding nonprofit endowment management helps you protect your organization's future while advancing your career. Prioritize continuous education and cross-departmental collaboration to navigate your long-term growth as a capable nonprofit fundraiser and endowment steward.