For many mission-driven organizations, financial sustainability is just as critical as programmatic impact. Among the most powerful tools for ensuring long-term stability is the endowment fund. While often discussed in the context of universities, hospitals, and large nonprofits, endowment funds can benefit organizations of all sizes when designed and managed strategically.
Endowments are not simple savings accounts; they are governed assets designed to safeguard your organization’s future. Yet many nonprofits lack clarity about how their endowments are structured. This uncertainty can lead to compliance challenges, misaligned spending, and weakened donor confidence.
Our goal is to demystify endowment funds and their intended use, so your organization can unlock their full potential and steward them responsibly, ensuring sustainable support for generations to come.
An endowment fund is a pool of financial assets, built from donor contributions, that is invested with the goal of generating income in perpetuity. The principal, or corpus, is preserved (restricted by donor intent), while a portion of the investment earnings may be spent each year in accordance with donor restrictions or a sustainable spending policy.
Think of it as a sustainable financial foundation: the contributions remain intact, while the earnings provide a steady, predictable revenue stream. This allows organizations to fund operations, scholarships, programs, or strategic initiatives without relying solely on annual fundraising or unpredictable revenue sources.
It is important to note that endowment funds have legal aspects as well and are governed by the Uniform Prudent Management of Institutional Funds Act (UPMIFA).
An “unrestricted” endowment is usually a board-designated reserve or quasi-endowment and not truly a donor-restricted endowment fund. While a board may designate certain funds as an endowment, it retains the authority to reverse that decision and repurpose the funds if necessary.
These may be referenced as endowment funds, but are not donor-restricted funds, instead, they are internally designated by the board to function like an endowment. Because they remain under board control, they provide flexibility. However, using or repurposing them should still be a thoughtful, strategic decision.
When in doubt as to what type of fund you have, return to the original gift documents.
Managing an endowment requires honoring donor intent, maintaining accountability, and ensuring the fund serves as a dependable source of long-term support. Consider the following best practices:
If your nonprofit is facing financial strain, consider more strategic options. Read our guide on navigating a cash crunch without relying on your endowment.
An endowment fund is not simply a financial reserve - it is a strategic asset that reflects both the values and the future aspirations of an organization. For professionals tasked with guiding nonprofit sustainability, understanding how endowments function, how they are managed, and how they support long-term mission delivery is essential. When cultivated thoughtfully, endowments provide more than income; they represent enduring trust and commitment between donors and the organization’s future.
If your nonprofit needs clarity on how to categorize or manage its endowment, the Redpath team can help you align your policies with GAAP, UPMIFA, and most importantly, your mission.