General Definitions and Terms Endowments

• Endowment grants — which provide some (or in rarer cases, all) of the capital for an organization’s permanent investment portfolio. Endowment grants can be made available to a whole organization (a “general institutional endowment”), or only to one specific division, activity, or project (a “special purpose endowment”).
• Endowment-like grants — which provide capital for a long-term asset that isn’t quite an endowment, but is very similar. Like endowment grants, these variations provide investable assets, but they aren’t meant to be permanent. Two examples, which we’ll discuss in more detail, are:
  1. Capital-depletion grants, which provide income over many years, but aren’t permanent. The funds are expected to be spent down gradually over a given period — usually between five and ten years — until the grant is fully used and there is nothing left from which to earn further returns.
  2. Working capital reserves, a kind of gap-filling or “rainy-day” fund, meant to give a grantee a way of dealing with unexpected dips in revenue or with unanticipated expenses. A reserve fund could be permanent, but only if withdrawals are kept below the amount earned, or if the withdrawn amounts are eventually replaced with new fundraising. Given that the exact use of proceeds from reserve funds usually isn’t known in advance, the life expectancy of the fund often can’t be predicted with precision.
• Endowment-related grants, which don’t create a permanent asset at all, but instead help grantees prepare for, raise, or manage an endowment — say, by helping them plan the structure and use of an endowment, design a fundraising campaign for it, develop appropriate financial controls and management systems, train the board or staff to oversee the fund, or otherwise build their capacity to handle an endowment effectively and responsibly.