What is a grant spend down?

Increasing numbers of grantmakers are opting for a spend-down strategy — meaning they intend to give away all of their philanthropic resources within a specific, limited timeframe and then close their doors. They do so for a variety of reasons.

Do endowments have to spend 5%?

If your organization is a private foundation, you are required to use or distribute 5% of the value of your net investment assets each year for charitable purposes.

Can you spend the principal of an endowment?

An endowment is a gift to charity which, under the terms of the gift, may not be spent in its entirety. Typical endowment terms permit the expenditure of income but not principal, or limit on the percentage or amount of the fund that can be spent in any year.

How do endowments work?

An endowment consists of all the donations and money a nonprofit receives specifically to generate investment income. The principal balance usually stays invested permanently, and only the interest earned from it is used to fund programs, cover operational costs, and fulfill specific wishes outlined by the donor.

Should foundations spend down?

“Spending down can be a great way for a foundation to increase its impact,” said National Committee for Responsive Philanthropy executive director Aaron Dorfman, “but it is also important to discuss with grantees their concerns and their needs, because the purpose of foundations is to support grantees and make a …

What does Harvard do with its endowment?

Endowment funds support nearly every aspect of University operations. The two largest categories of funds cover faculty salaries, including professorships, and financial aid for undergrads, graduate fellowships, and student life and activities.

How much endowment is enough?

It’s simple. It should be two times the amount of your annual budget. If your annual budget is $2 million dollars, your endowment should be $4 million. If your annual budget is $500,000, you should build an endowment of $1,000,000, and so forth.

Can endowments be legally changed?

If your endowment is a true endowment without a time restriction, the version of the Act adopted in your state will govern what you can or can’t do with endowment funds and you generally can’t change it without the Donor’s approval or a Court order.

What is the difference between an endowment and a donation?

An endowment accepts donations, and they’re usually created for a specific purpose. Unlike many other charitable donations, organizations with endowment funds do not spend the donations themselves. Instead, they use an endowment fund as an investment tool.

How are endowments invested?

Endowment funds are initially invested by donors for certain charitable purposes. They are usually established as trusts, which keep them independent of the organizations that they support. Endowment funds consist of cash, equities, bonds, and other types of securities that can generate investment income.

How can the endowment fund be spent?

This part of the Endowment Fund can be spent down by the (governing board) within the established distribution rules. This is considered a “quasi” or unrestricted endowment.

What happened to endowment spending in the 1990s?

During the favorable investment conditions of the 1990s, many institutions saw their endowments and endowment spending soar, and became more dependent on endowment spending than they had been.

What happens to the endowment corpus when returns fall short of spending?

This is because the endowment corpus is ratcheted up when returns exceed spending, but not ratcheted back down when returns fall short of spending. Indeed, because every new level of achieved endowment accumulation becomes the new perpetual goal, the demands of intergenerational equity even seem to require that any shortfall be made up.

Are institutions reexamining how they manage endowment spending?

More recent volatile market conditions, however, have constrained endowment spending—especially for the many institutions using a spending rule based on a three-year rolling average. As a result, many institutions are reexamining how they manage endowment spending.