Episcopal Church Foundation Vestry Papers - for leading congregations

An endowment is a powerful tool for churches to use to achieve long-term financial stability. An endowment is money designated for the long term to serve both current and future needs. A portion of the endowment can be used each year to support the church’s mission while the remaining amount helps ensure its long-term sustainability. In this post, we will discuss three critical aspects of structuring an effective endowment fund: organizing, investing, and growing.

Organizing the Endowment

If you're thinking of setting up an endowment fund or revising an existing one, here are some basic principles you should consider:

A. Vision

The first step to create an endowment fund is to establish a vision for the endowment. The vision is effectively the purpose of the endowment but presented in a way that connects to the church’s mission. The vision should answer the fundamental question of why the organization needs an endowment fund and what the fund will make possible now and in the future.

B. Permanence

The second consideration is the permanent nature of endowment funds. Generally, there are two types of endowments: donor-restricted (a “true endowment”) and vestry (or board) restricted (a “quasi-endowment”).

If a donor makes a gift to a church and indicates that it is for the endowment fund or uses words such as “income only” or “in perpetuity,” then that creates a true endowment. The organization has a legal obligation to fulfill the terms of the gift in perpetuity.

Also, if the organization promotes its endowment as a true endowment and donors give to the fund with that understanding, then gifts must be placed in the true endowment in perpetuity.
By contrast, if a church sets aside funds to be managed as an endowment, then it has a quasi-endowment.

Most churches establishing a quasi-endowment intend to manage it as if it were a true endowment, ensuring that withdrawals will be limited to an amount that will allow the fund to exist in perpetuity. The reality, however, is that no vestry or endowment committee can bind future leadership, so policies and practices may allow exceptions or be modified in the future.

C. The Uniform Prudent Management of Institutional Funds Act

The Uniform Prudent Management of Institutional Funds Act (UPMIFA) protects donor-restricted or true endowments and provides direction to endowment committees regarding investment and spending from these funds. As a practical matter, it makes sense to manage both true and quasi endowment funds under UPMIFA standards. This also helps ensure that the organization is managing all endowment funds responsibly.

UPMIFA sets a standard of prudent spending using a total return policy. However, the quasi-endowment can be spent by the organization outside of the rules of UPMIFA, subject to the rules you adopt in your Enabling Resolution.

Do you need help structuring or restructuring your endowment? Click here to email ECF’s Endowment Management program for sample endowment policies.

Investing the Endowment

A. Investment Policy

Once the endowment fund's purpose and structure are established, the next step is to create an investment policy. The investment policy statement should include the goals and objectives of the fund, investment guidelines, and the roles and responsibilities of those involved in managing the fund.

B. Investment Strategy

The investment strategy should be designed to achieve the goals and objectives outlined in the investment policy statement. It should consider the church’s risk tolerance, time horizon, and spending needs.

Diversification is critical to minimizing risk in the endowment portfolio. The investment committee should diversify the portfolio across multiple asset classes and investment styles.

Growing the Endowment

A. Fundraising

A growing endowment ensures the church can continue to meet new needs and signals congregational support for its mission and ministry. Take a broad view of fundraising – how might you interest your parishioners in giving to the endowment? Fundraising efforts can take many forms, Minute for Missions [not sure what this is], events, direct mail campaigns, online giving campaigns, nurturing major gifts from individual donors, and endowment-focused sermons are some of the ways you can encourage your congregation to give to the endowment. ECF has several resources to help you grow your endowment through new gifts.

B. Nurturing Donors

Finally, it's crucial to maintain strong relationships with donors who contribute to the endowment fund. Donor stewardship involves regular communication with donors to update them on the organization's progress, acknowledge their contributions, and express gratitude for their support.

Stewardship efforts can take many forms, including personalized thank-you notes, recognition in organizational publications, invitations to special events, and opportunities to get involved with the organization's work. Creating a Legacy Society is a great way to encourage and honor endowment donors. By cultivating strong relationships with donors, churches can encourage continued support and grow the endowment fund over time.

To summarize, establishing an endowment fund requires careful consideration of its vision, permanence, and compliance with legal standards like UPMIFA. It's important to have a clear purpose for the fund, an understanding of how the funds will be invested, and to consider the risks associated with different investment options and seek professional advice to make informed decisions.

Growing the endowment fund requires ongoing efforts to attract new donors, engage with existing ones, and communicate the impact of the fund's contributions. Regular reporting on the fund's financial performance, as well as updates on the initiatives it supports, can help build trust and inspire continued giving.

In conclusion, structuring an endowment fund is a critical process that requires careful planning, legal compliance, and investment management. With a clear vision, prudent management, and effective communication, an endowment fund can sustain and grow the mission of a church for years to come.

How can we help you structure your endowment for long-term sustainability? Contact the endowment experts at ECF at endowment@ecf.org to find out how we can help you.