Traditionally, endowment funding has been received by wealthy and well-established nonprofit institutions. This can often be in recognition of a donor’s relationship with an organization—for example, an alumnus and an institution of higher education. Recent advocacy by Bridgespan and others in the philanthropic space highlights ways for foundations to give to nonprofit endowments as part of an equity advancement strategy. This advocacy also recognizes endowments as opportunities to build financial stability for nonprofit organizations, especially for those that may not have been endowment candidates in the past. Through research, we at the Center for Effective Philanthropy (CEP) aim to gain a better understanding of how common it is for foundations to support nonprofit endowments, how decisions about endowment grantmaking are made, and what implications there may be for advancing equity through this type of grantmaking.
Endowment funds are most often used to establish a long-term, steady source of funding for nonprofit organizations. In this study, we define endowments as funds to be kept permanently and invested to provide continued support to the nonprofit organization or support for a designated purpose. Research has found that nonprofit organizations with endowments are shown to grow more quickly in assets, revenues, contributions, and expenses, and tend to be significantly larger, older, employ more people, and have more volunteers.
While endowments are seen as a tool to build financial diversity and organizational resilience, there are some critiques of the approach, including that endowments often restrict the bulk of funds so they can’t be used for immediate needs6 and that endowments can be a complex grantmaking tool to understand and implement. In recent years, the conversation about endowments as an equity approach has received more attention in philanthropy. Endowments for nonprofit organizations led by people of color are nearly four times smaller than those of white-led organizations, and their average percentage of revenue is less than half. “An endowment is not just a gift of money; it’s also a transfer of power,” argue Bridgespan’s William Foster and Darren Isom, “that makes endowments the ultimate form of trust-based philanthropy.” Similarly, the Schott Foundation for Public Education’s president and CEO, John Jackson, draws attention to the fact that while “most institutional foundations are funded through endowments,” when it comes to the nonprofits they work with, foundations “haven’t taken the strategic step to provide them with the same level of sustainable funding — the same level of power.”
Although some organizations in philanthropy have detailed the strengths and drawbacks of endowment funding, little is currently known about the degree to which foundations are funding nonprofit endowments, particularly those not at larger institutions, such as colleges and universities, hospitals, and museums. We hope that this study can help build an understanding of how prevalent endowment grants to nonprofits are and attitudes on their use, including the role endowments can play in promoting equity and how endowments fit within the broader array of grantmaking tools available to funders.
This research was designed to answer the following questions:
- How common is it for foundations to award grants to nonprofit endowments?
- What are foundations that make endowment grants to nonprofits trying to accomplish with their funding, and what are the criteria used to determine whom to grant to in this manner?
- What do foundation leaders see as the barriers to contributing to nonprofit endowments?
- Are grants to nonprofit endowments considered to be part of a strategy to promote racial equity (and other forms of equity related to gender, LGBTQ identity, and disability status)? Why or why not?
The findings in this report are based on:
- Responses from 283 foundations to our survey fielded from September to November 2023 (see Table 1), resulting in a 34 percent response rate. See Appendix A for survey methodology and Appendix B for
- demographic information about survey respondents.
- Interviews with 17 foundation leaders who volunteered to be interviewed while taking the survey. See Appendix A for interview methodology and Appendix C for demographic information about interviewees.
The Center for Effective Philanthropy, 2024
