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UK Endowment Funds

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UK Endowment Funds

How endowed is well-endowed?

This article, by Ken Hoffman, originally appeared in Third Sector on October 19, 2000.

One approaches the UK charity world with suggestions from the US very delicately. But the time has come to speak in favour of permanent endowment funds, and the fewer restrictions on their use the better. Charity is better for having access to income from endowments.

Consider the amazing disparity in endowment values among leading charities. The Royal Society for the Protection of Birds, for instance, had annual operating expenditure of £42m in 1999. This compares with its US cousin, the National Audubon Society, which had a £36m budget, and the much smaller Massachusetts Audubon Society - a separate organisation - which had only £7m in operating expenditure.

Yet their respective endowments are in the opposite order. The RSPB had £9m; the National Audubon Society £77m; and the runt of the litter (if that is appropriate to birds) had an astonishing £89m in its permanent endowment fund. Put a different way, about 1 per cent of RSPB's annual budget comes from endowment earnings; 10 per cent at National Audubon; and 67 per cent at Massachusetts Audubon.

Some degree of endowment income is a tremendous advantage to producing a better charity. It provides fiscal stability, allows long-term commitments, covers unglamourous work such as facility maintenance, and relieves staff from the necessity of chasing every charitable pound.

The doubters might well ask, then, how much is too much? Or, at what point does a charity lose touch with the philanthropic marketplace? I have just completed a small capital campaign for a binational US-Canadian charity. It doubled its endowment, to £4.7m, with the goal of funding 15 per cent of its annual operating expenditure. That seems a reasonable target to me, because it fulfils all the best justifications for permanent endowment. And no one will grow complacent when they still have to raise 85 per cent of their budget every year.

In the US, there are only very limited restrictions on the use of endowed funds. The donor's intent is paramount, but usually that is already defined by the solicitation for funds. Frequently, the bulk of an endowment is entirely unrestricted.

Of course, there are cases when a charity can be too well-endowed, impossible as that may sound. Two very well established charities in Boston come to mind. At one of them, due to good fund management, the endowment now pays for half of its annual operations. At another, 90 per cent of the budget comes from the endowment.

Viewed from the US, the UK's legal restrictions against charity endowments seem a needless bar to growth and success. Time for a change? It seems to be under consideration.