Trust-Based Capital: Endowments as a Strategy to Support Social Justice Organizations
Having an impact on deeply entrenched problems often requires funding at scale over long periods of time. While family funders use many tools to support their grantees and communities, few are employing endowments as a way to sustain nonprofits over the long term. Here, leaders from the Field Foundation of Illinois, Grand Victoria Foundation, and Schott Foundation share the benefits of endowments, particularly when funding social and racial justice organizations. Endowments not only allow capital to grow over time, but they shift power and decision-making to nonprofits in meaningful ways.
A recent study—commissioned by the Schott Foundation and conducted by Candid—shows that despite philanthropy’s stated commitments to advancing racial justice, leaders of color and their organizations remain grossly underfunded. Nonprofit organizations, particularly those serving communities of color, need greater capacity and consistent funding to drive change through their work and sustain themselves over time. Particularly at this moment in time as nonprofits and funders wrestle with a new funding and political landscape, we believe the strategic use of endowments with grantee partners is a practical approach for family philanthropies that are willing to make large investments to support resilient organizations addressing racial and social justice issues.
The Benefits of Endowments
Endowment funds, often associated with universities, hospitals, or museums, provide institutions with more flexible and longer-term support. A percentage of funds are available annually, while the remaining funds invest and grow over time. In contrast, more traditional grantmaking practices often provide short-term support or single-year grants, placing organizations in the precarious position of continuous fundraising and the inability to plan far into the future. Many donors fund grantees on annual or shorter cycles when we know, in fact, that building a highly functioning multiracial democracy will take substantially more time.
Endowments allow grassroots organizations to have more stability in their organizations and more capacity to plan and implement a growth strategy over time—without worrying about where the next dollar will come from or when it will arrive. They offer funding to spend as the organizations themselves see fit—rather than having to fulfill different programmatic and administrative funder requirements. Endowed organizations can make immediate strategic decisions on spending, from salaries, communications, and campaigns to self-care and healing for their staff members.
Getting Started
An endowment fund is a pool of donated capital placed in an investment portfolio, which becomes a long-term revenue source for an organization. While there are different legal forms of endowments, all function similarly: They transform large gifts into bite-size amounts that even the smallest nonprofits can absorb. For example, a $1 million endowment gift might generate $50,000 annually, enough for a bookkeeper or mid-level staff person in perpetuity.[i]
We can apply the same standards to our philanthropy portfolio as our investment portfolio—considering grantee partners as “blue-chip” organizations that we need on the ground and in our portfolios in perpetuity. Acting as strategic partners, we must trust that our grantees know the best use of resources to develop and execute strategies to bring about systemic change—while also being ready to advise them when they face obstacles. And as with other investments on the 3-, 5-, or 10-year horizons, endowments can and should be evaluated as required.
With the launch of the Racial Justice in Education Endowment at the Schott Foundation, a $30 million fund, Schott has set out to do just that and endow three national racial justice alliances with $10 million each. Over five years, these grantee partners will be a part of the investment committee and will receive technical assistance and support—enabling them to take over management afterward. We will gain insights from them on how endowment funding enables their organizations to plan and execute their strategies effectively.
Sharing Expertise and Power
While grantee partners are the experts in the issue areas donors fund, philanthropists can use knowledge about endowments to support grantees in understanding and managing them.
It is common for funders to spend the federally required minimum of 5 percent of endowed funds for charitable purposes, arguing that the remaining 95 percent of their funds are growing to help more people in the future. Yet, consider the benefit of endowing a grantee with funds that will continue to grow under the grantee’s control—an important shift in the distribution of wealth and power, motivating donors and funders to use their financial expertise to support growing assets for grantees.
When thinking about power and trust, we can help our philanthropic colleagues and boards see that power can manifest differently. It is a powerful position to be in deep relationships with organizations, creating necessary, impactful change for our communities. Endowments are a way to deploy trust-based capital without strings, but with support.
Evolving Trust from Relationships to Capital
The Field Foundation convened a group of funders in Chicago to explore the role of endowments. With its mission to support community power building, Field is committed to investing and organizing capital, with the aim of using its investments and influence to help grantees realize resident-endorsed agendas.
At the center of our funder discussion was Schott’s “EndowNow” campaign to make long-term investments in vital BIPOC-led organizations doing critical racial justice work in communities and yielding impact. But instead of solely considering how to distribute grants, we tackled the broader question of how to distribute wealth and power. Schott also spoke about its Racial Justice in Education Endowment Collaborative Fund, positioning this intermediary to raise capital and ensure the sustainability of three BIPOC-led national education justice alliances. An intermediary fund like Schott’s allows family philanthropies to invest any amount, without the challenge of setting up an endowment for a grantee on their own.
During the convening in Chicago, we also heard about endowments from the Grand Victoria Foundation, which works to catalyze racial justice in Illinois. The Grand Victoria Foundation has endowed two organizations, one well-established and one emergent, with $5 million each. The substantial one-time endowment allowed the established organization to address a cash-flow crisis and become a stronger and more stable presence over time. The emergent organization also experienced continued stability with the endowment, enabling it to expand its scope and scale of work significantly. These endowments reflect the Grand Victoria Foundation’s evolution to put its mission—catalyzing racial justice—at the same level as its fiduciary responsibility.
Re-Thinking Risk and Capacity
Trust-based communications provide a good start when considering which organization is best suited to receive an endowment and its size. Talking with grantees about their interests and readiness to accept endowments will provide some of the best insights.
Some nonprofits might prefer unrestricted funds to focus on a specific project immediately, or they might be in the process of developing an endowment. In the latter case, they could benefit from a philanthropist’s expertise and support in the endowment’s development, even though they might not be ready for an immediate investment.
Other nonprofits might desire multi-year funding to complete specific initiatives and longer-term goals. This might mean a request for multi-year grantmaking, which also sustains organizations more than traditional short-term grants.
When the Robert Wood Johnson Foundation (RWJF) considered funding three endowments[1], a non-negotiable was to help protect “the longevity of key aligned organizations” with a demonstrated, long-standing commitment to core values. In RWJF’s case, this meant having a long-term relationship with the grantee to enable the foundation staff to deeply understand the organization’s alignment.
In addition, RWJF formed a working group that leveraged the foundation’s financial and legal expertise. The working group met with their nonprofit counterparts and reviewed the details of the potential endowments and structures. The working group determined that the organizations had the “policies, practices, and access to the expertise” needed to manage an endowment.
Smaller philanthropies and philanthropists can also leverage their financial advisors and other resources they use to manage endowments and assets. The point is, by acting as strategic partners, we can help grantees access capital that goes above and beyond the value of a grant—including knowledge and relationships that will help sustain their organizations over time.
In Conclusion
Although we are aligned in our belief in the potential of endowments, we acknowledge there may be hesitation among our philanthropy colleagues and boards, given exposure to unknown risks, preferences for general operating support, and reluctance to cede power over the use of funds. But what if we reframed our conversations around the risk of the work not getting done?
We can and must make progress in solving for racial and social justice, and it will be critical to consider all funding mechanisms available, including endowments. Working together with our grantees as trusted strategic partners, we have an opportunity to innovate in this space and make a greater and longer-term impact.
Daniel Ash is president of the Field Foundation of Illinois
Sharon Bush is president of the Grand Victoria Foundation
John H. Jackson is president and CEO of the Schott Foundation
[1] https://search.issuelab.org/resource/endowment-funding-as-a-grantmaking-tool-the-robert-wood-johnson-foundation-approach.html
[i] https://www.philanthropy.com/article/endowments-can-power-racial-justice-groups-if-only-philanthropy-would-fund-them
The views and opinions expressed in individual blog posts are those of the author(s) and do not necessarily reflect the official policy or position of the National Center for Family Philanthropy.