Q&A with Ryan Crespino, vice president for finance and administration
Q: What is an endowment?
A: An endowment is a fund that is made up of donations to a nonprofit organization that are subject to a requirement that the principal be maintained in perpetuity and invested to create a permanent source of income for the organization. Organizations then receive distributions from the endowment to be used for its charitable purpose.
Q: How are endowed funds at the Greater New Orleans Foundation invested?
A: The majority of endowed funds at the Greater New Orleans Foundation are pooled together to create one large investment fund that is invested in a diversified portfolio of stocks, bonds, and other investments. The investments are overseen by TIFF (The Investment Fund for Foundations) which works closely with the Greater New Orleans Foundation’s Investment Committee to set policy and review strategy.
Q: What is the average annual return of endowed funds at the Greater New Orleans Foundation?
A: Over the last five years, the endowment pool at the Greater New Orleans Foundation has yielded an average annual return of 9.08%
Q: How many nonprofits have endowed funds at the Greater New Orleans Foundation?
A: Currently, the Foundation manages 123 endowment for area nonprofits
Q: What are the advantages of having an endowed fund?
A: The rewards of an endowment are many: it signifies a major turning point in an organization’s growth and creates an aura of permanence; it can contribute to the long-term stability of an organization; it can generate income long after contributions are made; and, it’s a powerful way to pursue long-term organizational goals.
Q: If my nonprofit opens an endowment at the Greater New Orleans Foundation, how much can it draw down annually?
A: The Greater New Orleans Foundation’s Investment Committee sets the spending rate on an annual basis. That rate has been set at 4% for the past five years.
Q: What happens if the endowment’s value drops below that of the initial amount?
A: Generally speaking, grantmaking is suspended until the fund’s market value exceeds the initial gift(s) amount. Due to the nature of endowments being held in perpetuity, it is prudent to suspend payouts when the value of the endowment dips below the initial gift(s).
Q: Is an endowment the right choice for all nonprofits?
A: Each organization is different and needs to review their individual circumstances before attempting to raise funds for an endowment. We recommend that nonprofits have at least three months to one year in cash reserve before pursuing an endowment. Additionally, we recommend that nonprofits continue contributing to the endowment fund after the initial investment.
If you’re a nonprofit interested in starting an endowment, you may be interested in participating in the Freeman Challenges. In order to participate, you must first attend an “Are you ready?” workshop, the first of which is January 22.