March 30, 2023
Five Steps to Creating a Successful Endowment
This blog post is the third in the series, Endowment 101: Creating a Successful Endowment
Success doesn’t just happen; we must plan for it. Many churches have an endowment fund, but not all have the markers of success. At ECF, we encourage churches to act intentionally and proactively to build a successful and sustainable endowment that engages the vestry, the endowment committee, and the whole church community. It’s important to continually assess your endowment strategy especially if an endowment lacks organization, if it is not growing with new gifts, or if many church members are unaware of the endowment’s existence or purpose.
How to Structure your Endowment for Success
Step 1: Identify the church’s vision for the endowment
The first attribute of a successful endowment is a clear vision of what it can help the church accomplish. Endowments are an excellent way for churches to ensure that the gifts they receive will continue to benefit the church for years to come, but that will only become a reality if there is a direct line from the mission of the church to the vision of the endowment. Are you clear about how your endowment fund can help your church fulfill its mission? (And are you clear about its specific purpose?) All church leaders – including both vestry and endowment committee members – as well as the congregation must “own” the endowment vision. Root it in your shared mission. Make it simple and compelling. And proclaim it clearly.
Step 2: Create a written endowment policy
A clear, comprehensive, and written endowment policy is also a critical success factor. Your policy should state the purpose of the fund and detail who will oversee it. It should also include how the fund may be invested and spent and how new gifts will be handled. This document will guide both current and future church leaders, ensure appropriate oversight and communication, and reduce confusion or conflict, especially as conditions at your church may change. It’s a good idea to review your endowment policy each year.
[Click here to email ECF’s Endowment Management program for sample endowment policies.]
Step 3: Determine the investment strategy to grow the endowment
At the heart of your endowment policy is the Investment Policy Statement, or IPS. This statement outlines the fund’s investment objectives, time horizon, and risk tolerance. It sets out broad investment parameters and any specific investment restrictions. This is also the right place to include the church’s spending policy – including what spending is permissible spending and how to determine an annual distribution – to ensure it dovetails with the investment approach. A good IPS also clarifies how progress toward investment goals will be measured and clarifies the roles and responsibilities of the endowment committee and the investment manager.
Step 4: Identify who will serve on the Endowment Committee
The most successful endowments have committees that recognize the gravity of their duties and who are engaged not only in overseeing the endowment but also are willing and able to promote the mission of the endowment fund. When a church creates an endowment fund the members of the endowment committee become fiduciaries, meaning they are legally responsible to act as good stewards of the donated assets. Having the right people on the endowment committee can mean the difference between having an endowment that fulfills the wishes of the donors and makes an impact on the church community or running afoul of the donors’ wishes and ruining the goodwill your church has with current and future donors.
Step 5: Create a plan to grow the endowment
Sustainable endowment funds have a growth strategy – a plan to grow the endowment by nurturing long-standing donors and encouraging new donors. Successful endowment committees plan ways to increase donations and raise awareness about the endowment by educating potential donors on the purpose of the endowment and how the endowment fund matches the donor’s charitable giving needs.
Committee members create clear and consistent messages about the needs and goals of the endowment fund and think about the different motivations for why people give. They have conversations with church members to get a sense of why they might donate to the endowment and nurture those relationships. And they give donors options on how they can give that fit their needs and budget.
[Could you use help in growing your endowment with new gifts? Watch the replay of “Marketing Your Endowment: Creating a Communications Strategy”]
The success of your church’s endowment fund reflects the vitality and mission of your church. An endowment is not meant to be a rainy-day fund, the funds are meant to be drawn and spent, at a responsible level, to sustain a church’s ministries in perpetuity. Creating a sustainable endowment requires active attention and engagement with the structures of your church’s endowment to increase the impact your church can have in the world.
Do you need help structuring, investing, and growing your endowment? Contact the Endowment Management program at ECF at firstname.lastname@example.org for more information.