What is an Endowment Fund?

At The San Diego Foundation, we manage endowments for individuals who want to ensure their charitable legacies are effectively stewarded now and long after they are gone.
At The San Diego Foundation, we manage endowments for individuals who want to ensure their charitable legacies are effectively stewarded now and long after they are gone.

Many people think about universities when they hear news about endowment funds. That’s not surprising, as the market value of college endowment funds is more than $598 billion, with Harvard University topping the list with over $35 million in its endowment.

Much of this has to do with a growing number of university alumni contributing to endowment funds as years pass, as well as prudent investments.

However, such funds are not restricted to educational institutions. Universities, churches, hospitals, nonprofit charities and community foundations also have this type of charitable fund.

An endowment fund, quite simply, is money set aside (invested) to earn revenue to fund some type of charitable activity. Unlike a typical investment fund, the beneficiary of an endowment fund is a nonprofit organization instead of individual investors. 

The principal value of the endowment fund is kept intact, while the investment earnings can be distributable dollars used for charitable grants to nonprofits. Thus, an endowment fund can be held permanently, allowing donors to support causes they care about in perpetuity. 

Donations to endowment funds are tax deductible. Donors often set up endowment funds so they can receive charitable tax benefits immediately upon making their donation, while maintaining the social-good grantmaking power for the long-term.

Institutions and individuals can donate both cash and non-cash assets – such as stock, mutual funds or real estate – to fund the endowment.

Charitable organizations that have endowment funds build investment strategies – typically steered by investment committees – that increase the fund’s impact and create sustainable growth. Assets are invested into investment portfolios to maximize performance and charitable dollars.

Endowment Fund Policies

Most endowment funds have the following three components:

  1. Investment policy: Outlines types of investments allowed and investment manager restrictions in meeting return targets
  2. Withdrawal policy: Establishes the amount an organization or institution is permitted to take out from the fund at each period or installment based on the needs of the organization and the amount in the fund.
  3. Usage policy: Identifies the fund purpose and ensures grantmaking is adhering to these purposes, both appropriately and effectively.

Three Types of Endowment Funds

Endowment funds come in three different shapes and sizes:

  1. Restricted endowments: The most common type of endowment, a restricted endowment has a principal that is held in perpetuity, while the fund’s investment earnings are granted per the donor’s recommendation, such as with a donor-advised fund.
  2. Term endowments: The principal of the endowment can be granted, but only after a certain period of time or a certain event.
  3. Quasi-endowment: Also known as “board designated endowments”, quasi-endowment funds are funded by the nonprofit organization itself, and their principals may be used or granted at the discretion of the board.

Penalties may apply if endowment terms are violated.

Learn More

In addition to managing non-endowment funds, The San Diego Foundation manages 1,330 endowment funds of more than $682 million.

Our assets, including endowments, are professionally invested based on specific fund types to maximize return, strengthen grantmaking and create sustainable growth.

If you would like to learn more about endowment funds or how to maximize your philanthropy with endowed donor-advised funds, contact our Development & Stewardship team at (619) 814-1332 or DonorServices@sdfoundation.org.