Endowments

An endowment is a fund in which the principal, or corpus, is invested to generate income for a nonprofit organization. The principal is usually intended to remain intact in perpetuity, while a portion of the investment returns is used to support the organization’s mission. Endowments are typically funded by gifts from individuals, foundations, corporations, or bequests, with donor intent often expressed through restrictions on how the income may be spent.

Endowment funds are governed by a board or investment committee that sets spending policies and oversees investment management. Spending policies determine how much income or total return may be withdrawn each period, aiming to balance current needs with the preservation of purchasing power over time. Endowments can be permanent (true endowments) or quasi-endowed (where the principal may be expended at the board’s discretion), and some gifts are designated for a fixed term or purpose.

Common uses include scholarships, faculty positions or chairs, program and research support, and the preservation of cultural or historic assets. The income generated by endowments helps stabilize finances, enabling long-term planning and program continuity beyond annual fundraising cycles.

Risks and governance considerations include market performance, inflation, liquidity, and adherence to donor restrictions. Many jurisdictions have laws or guidelines governing endowment management; in the United States, the Uniform Prudent Management of Institutional Funds Act provides standards for prudent investment and spending. Transparency and regular reporting are important to donors and regulators.

Endowments are especially prevalent in higher education, but are also important for museums, religious institutions, hospitals, and other nonprofit organizations.