Who Will Govern and Oversee the Fund?
The most straightforward answer to the question is unquestionably the organization’s board.
- Preparing the Board
If the governing body does not have members who feel confident about overseeing investable assets, then it may well need to recruit some members with skills in that area, and also consider training for current members. Several grantmakers argue that one effective use of an endowment-related grant is to support board development — training, facilitated discussion, expert presentations, and perhaps new member recruitment — for organizations considering an endowment campaign.
- Written Rules
Grantmakers and endowed institutions both agree that any board preparing to oversee an endowment should start by drawing up written investment policies and guidelines. These tools outline the organization’s plans for achieving its goals. They also make certain that the board remains informed and accountable, and help avoid misunderstandings with staff, constituents, donors, and outside service providers.
- Safeguarding Principal
Among the chief purposes of the written plan is to set rules and procedures for preventing inappropriate “invasions” of the endowment. Invasions typically occur when an organization withdraws some of the endowment’s principal or borrows against the fund. Another kind of invasion can be the result of no ill intent, but simply inadequate forethought: An endowment’s principal value can be “invaded,” in effect, by failing to provide for the likelihood of market losses or the corrosive effects of inflation. If nothing is done to replace the value of the endowment that is lost to inflation, the real value will decline year by year, just as surely as if someone were making withdrawals. A board’s written investment policies and guidelines therefore should make provisions for future risks like inflation and market downturns, as well as ensuring the proper handling of current assets.
- Organizing Committees and Getting Outside Help
Before considering an endowment grant, many grantmakers look for a committee of board members — with the right mix of technical expertise and overall leadership — who can oversee the fund at close range. If such a committee doesn’t yet exist, the grantmaker usually encourages the grantee to create one well before it receives any investable funds. Some organizations establish a separate corporation with its own board to receive and manage endowment grants. Even on a board with several expert members, it will be hard to attend to all aspects of managing an endowment without some professional advice. An asset management consulting firm can develop an asset allocation plan consistent with the organization’s goals, assess and recommend potential fund managers, measure and evaluate a fund’s performance, and offer advice about terminating a poorly performing manager.
Takeaways are critical, bite-sized resources either excerpted from our guides or written by Candid Learning for Funders using the guide's research data or themes post-publication. Attribution is given if the takeaway is a quotation.
This takeaway was derived from Providing for the Long Term.