When donors ask a nonprofit if it has an endowment fund, they are either interested in making a gift to it or assessing whether the nonprofit has a foundation in place to ensure its long-term sustainability. All too often, the nonprofit’s answer is “no.” Why? Because setting up an endowment can seem daunting to a nonprofit.
First, the organization needs to establish gift acceptance and asset management policies and processes, often including the ability to accept complex assets. The nonprofit will also need to choose an asset management firm or manage the assets themselves. Managing the assets can be complicated as the nonprofit’s staff and board must have oversight expertise in this field to ensure the funds are administered properly.
Still, it is important that every nonprofit be in a position to be able accept an endowment gift. To many donors, the mere establishment of an endowment gives them confidence in the organization. If an endowment is not already set up when the donor asks, the nonprofit could miss a big gift. The Community Foundation of Anne Arundel County (CFAAC) can help. An endowment fund set up through CFAAC can not only ensure the nonprofit’s long-term success, it can also eliminate an administrative burden to a nonprofit’s already overburdened staff.
To understand why endowment funds are so vital to a nonprofit and its donors, it’s important to understand how they work. In an endowment fund, donations are pooled together and invested. At the end of the year, a portion of the pooled money goes to the nonprofit, while the remaining assets are retained in the fund so it can continue to grow. Endowments are different than reserve funds in that they are designed to keep the principal untouched. However, the nonprofit can use the investment income as needed for programs, operations or purposes specified by the endowment donors.
Endowment funds are not only great security for the nonprofit, but they ensure donors that the nonprofit will be there for the long haul. Endowed funds can be income streams for the life of an organization, sustaining them with invaluable financial support through unstable times. That allows them to maintain their staff and continue their programs. During stronger economic times, nonprofits can use the funds to expand support and develop new programs and services.
Establishing or donating to an endowment fund is, in a way, the ultimate gift to a nonprofit. Often, wills and bequests can leave transformational endowments to nonprofits that can help these organizations in ways they have only imagined. For a nonprofit, especially a small nonprofit, to have this type of security is a dream come true.
Nonprofit endowment funds at CFAAC
Nonprofits that hold endowment funds with CFAAC receive financial investment oversight through CFAAC’s Asset Management Committee, ensuring the nonprofit’s success so they can continue to do what they do best — serve the community through programs, services and funds. CFAAC will manage the fund, report to the IRS and the state, prepare quarterly statements and distribute income to the organization. The nonprofit will receive quarterly financial reports on the status of the endowment, including gifts, grants, fees and investment returns. The nonprofit will also have access to the online portal to review the status of its fund at any time.
Nonprofit or agency endowment funds established through CFAAC are invested in CFAAC’s Long-Term Growth pool for maximum returns through strategic investment. The endowment is pooled with the overall assets of CFAAC, which reduces investment management costs and allows exposure to sophisticated investment vehicles. Over time, the nonprofit’s endowment should grow as the result of better-than-average investment results and low management fees. Funds established through CFAAC also benefit from CFAAC’s promotional efforts; the organization’s endowment will be publicized in the community.
The community foundation holds a variety of endowments that can be supported by interested donors including field of interest funds such as the Fund for Anne Arundel and its Arts and Culture Fund. There are also a growing number of nonprofits that have chosen to partner with CFAAC to manage their endowments such as the Chesapeake Bay Foundation Fund, Anne Arundel County Public Library Foundation Endowment, Londontowne Symphony Orchestra Endowment Fund and more. Visit cfaac.org to learn more.
If you’re a donor or a nonprofit looking to set up an endowment fund at CFAAC, contact us at info@cfaac.org or 410-280-1102.
Mary Spencer is president and CEO of the Community Foundation of Anne Arundel County. The CFAACis a tax-exempt, 501(c)(3), publicly supported philanthropic organization with the long-term goal of building permanent funds that provide support to local nonprofit organizations through grants and special projects. Our mission is to inspire and promote giving in Anne Arundel County by connecting people who care with causes that matter. Established in 1998, CFAAC is one of the largest funders of nonprofit organizations in Anne Arundel County. CFAAC distributes $4 to $6 million annually.
This story was originally printed in the March 13, 2023 edition of the CAPITAL GAZETTE.