Endowment Funds
Prepared by The Community Foundation for Ireland
Some Background
Many of Ireland’s charities and groups in the community and voluntary sector face an annual struggle to meet their annual budget and have difficulties in planning their work programme in light of ongoing financial uncertainties. Ireland is more dependent on government support and this can be prone to change and uncertainly. In this context, this is a short introduction to the concept of, and journey to, developing an endowment fund.
As organisations grow and adapt, their approach to different financial and governance issues changes. Typically, when a charity is first established, money is scare. Over time, the charity may develop into a stronger entity and hire full-time staff including a Chief Executive, programme staff, administration and then perhaps a fundraiser. If funding streams can be improved, and there is agreement at board level, the charity may be in a position to create a reserve fund which can be there for possible rainy days ahead. A charity may also purchase or receive donations of shares which may either be used as a reserve or the income may be earmarked for current expenditure. When it comes to a capital programme, a bank may be more likely to give a loan to a charity with a reserve and / or an investment portfolio.
Religious orders are also charities would tend to invest conservatively with a goal of beating base investment rates while providing near or complete capital security. Where there is clearly budgeted expenditure for the years ahead, this works very well. The investment may or may not be an endowment and the capital sums may in certain cases be available if required.
In 2007 and 2008 it is likely that Irish charities holding publicly quoted shares (as with many other investors) lost significant amounts of money on investments of Irish and other internationally quoted shares. Perhaps the events of 2008 should sound alarm bells for the financial structuring of charities in Ireland going forward.
Endowment Funds
Permanent endowment is property of the charity (including land, buildings, cash or investments) which the trustees may not spend as if it were income. It must be held permanently, sometimes to be used in furthering the charity’s purposes, sometimes to produce an income for the charity.
An endowment fund can be defined as: Unlike the reserve or investments previously referred to, the capital invested in an endowment fund will not be available to the charity in the future, only the income earned is made available. An endowment fund is typically invested in a broad range of assets – equities, cash and bonds – with defined limits on each, across a broad range of markets and with a clear set of investment objectives. This helps provide the certainly that the fund will remain well invested and that it should continue to generate an income for the charity in good times and bad.
Most Irish donors to charities are unlikely to have heard of the concept of an endowment fund. It is however well developed in other countries, especially where there have been generations of wealth holders. Charities generally and The Community Foundation for Ireland specifically can play a role in educating prospective donors on the rationale for and benefits of endowment funds for charities.
For charities with realistic ambitions of developing a significant endowment (for example a large arts organisation or third level education establishment), they will probably establish their own endowment fund. Community foundations worldwide are a resource for both donors and community groups seeking to establish an endowment. Charities which either don’t have the know-how, capacity, desire or time to establish their own endowment could set up a fund under the umbrella of The Community Foundation for Ireland. In so doing, they benefit from the specialist knowledge of The Foundation and the pooling of funds with other charities and donors at The Foundation. The Foundation seeks to provide a ‘safe pair of hands’ in what can be a complex area.
A short brochure – ‘An Organisation Endowment fund for Your Charity’ – is available from The Community Foundation for Ireland. This outlines in greater detail the benefits of establishing a fund and how in practice it works.
The Foundation can be contact directly:
Niall O'Sullivan
Head of Fund Development
The Community Foundation for Ireland
32 Lower O Connell Street
Dublin 1
Tel: 01 874 7354
Email: nosullivan@foundation.ie
www.communityfoundation.ie
Additional Resources
Visit The Wheel website to download Guidelines for Developing a Reserves Policy.
About The Community Foundation for Ireland.
The Community Foundation for Ireland is an expert donor services and grant-making organisation. It was established in 2000 and is a registered charity. Since then individuals, families, businesses and other institutions have set up charitable funds under the umbrella of The Foundation. The Community Foundation helps people to engage in more effective and rewarding philanthropic activity by connecting donors to the most deserving and impactful causes. By 2008, the combined value of permanent donor funds at The Community Foundation was €27 million. Since its inception it has made grants to date on behalf of donors of over €5million. President Mary McAleese is the Patron, and the Board is comprised of distinguished representatives from the public, private and community and voluntary sectors.
