Starting from scratch: Building of meaningful endowments by public charities

Abstract

Most nonprofits lack a true endowment and endowment wealth is concentrated in a relatively small number of organizations and subsectors. This study supports an operational definition of material endowment, equal to or greater than annual expenses, and investigates how common it is for a nonprofit to establish a meaningful endowment over time. Specifically, we address whether the sector's enthusiasm over the potential of endowment building is reflected in charitable organizations' experiences. Using financial data, we find that building a meaningful permanent endowment is a rare achievement among public charities over a period of two decades. Meaningful endowment creation, achieved by less than 2% of the sample, is more common for organizations with donor attachments, the need for subsidization of mission services, those with more fundraising costs, and those with more donative revenue portfolios.

Background risk and nonprofit endowment portfolio volatility

“…The new endowment data provide opportunities to explore endowment behavior empirically, comparing and contrasting different types of nonprofits with universities. This article is among the first to tap into this new resource, in addition to the studies by Dahiya and Yermack (2018) on endowment returns and distribution behavior, as well as Ely, Katz, and Calabrese (2020) on endowment building.…”

Endowment building and use by nonprofits: An integration of theory and practice

“…We drew random samples from within the 26 NTEE codes weighted by the overall frequency in the population for a total of 194 interview requests. The number of requests represents nearly 15% of nonprofits identified as having built a meaningful endowment during the time period analyzed (Ely et al, 2020). Twelve invalid email addresses resulted in the authors contacting 182 organizations.…”

“…Despite the importance of endowment to managerial decision making in nonprofits, we still know very little about how nonprofits build endowment and how it changes organizations. Although Ely et al (2020) find very few nonprofits build a meaningful endowment over a long period of time, there remains a desire among donors, as well as managers, to establish and build endowment in some nonprofit organizations. Recent research suggests that the majority of nonprofit endowment growth accrues from investment returns rather than new contributions (Lo et al, 2019), but such growth cannot occur without first establishing a funded endowment.…”

“…While endowment might be sought‐after by nonprofit managers and boards, establishing and building one is a rare organizational feat (Ely et al, 2020). Furthermore, the extant literature tends to focus on the theoretical reasons for a nonprofit organization to hold endowment, but has not directly asked managers why endowment is desirable, why and how such assets are acquired in the first place, from whom the initiative for building endowment originates, or how these organizations change because of endowment.…”

The new world of philanthropy: How changing financial behavior, public policies, and COVID‐19 affect nonprofit fundraising and marketing

“…At the same time, NPOs were forced to be innovative and diversify in developing new programs and initiatives for additional constituents (Ely et al, 2020 ). Introducing new activities and initiatives augmented original offerings to be COVID‐19 specific.…”