The independent schools with which we partner often ask, “can we raise money for endowment?” While this is not a new question, it is being asked with increasing frequency and urgency as schools grapple with the opposing pressures of a shrinking full-pay market and the need to increase tuition to balance the budget.
The question has great urgency for many schools. The challenges of affordability and the impending budgetary constraints from diminished tuition revenues were exacerbated by the COVID-19 pandemic, leaving schools that lacked sufficient endowment feeling financially vulnerable. Without the safety net of endowment savings or the operating dollars drawn from investment income, some independent schools have faced a very real threat of closure. It comes as no surprise, then, that there would be renewed interest in raising money for endowment.
The very question itself though – “can we raise money for endowment?” – suggests a doubt that it is possible. The question reinforces a popular perception that endowment dollars are much harder to raise than capital dollars because they lack the tangible aspects of campus facilities like classrooms, gymnasiums, or libraries. While the impact of a facility on a school’s programs may be more obvious, the power of an endowment is far greater in its long-term, positive effect on those programs and the people they serve. Indeed, schools can raise money for endowment by focusing on some critical strategies.
1. Demonstrate Impact
As English teachers are fond of saying, it is always more compelling to show than it is to tell. The same holds true in making the case for endowment. Showing prospective donors how endowment gifts directly support students and faculty will go a long way in helping them understand the important impact of their gift. For example, an endowment gift to support financial aid can be directly shared through profiles of those students for whom the educational experience would not otherwise be possible. A thoughtful impact statement demonstrates to the donor that their gift does not disappear into a nebulous savings account; rather, it’s creating access and opportunity for a deserving student.
The same holds true for faculty support. A gift, for instance, to endow professional development opportunities can be reflected in specific stories and examples of faculty work and travel. Consider hosting an open house for donors at the beginning of the school year where the faculty display experiences and outcomes of their summer travel and study. A successful event would create that moment where a donor can engage directly and personally with a faculty member who shares, for example, her amazing experience studying the Costa Rican rainforest. The donor will leave with a lasting sense of personal impact, as well as with a clear understanding that their gift creates a legacy of these life-changing experiences.
2. Create Recognition and Stewardship Opportunities
Named endowment funding opportunities are an important strategy for countering the common misconception that endowment gifts don’t have direct impact. A school can establish named funding opportunities, such as a faculty chair, a student scholarship, a professional development fund, or even an entire program. These opportunities allow a school to celebrate the donor while sharing the direct and lasting impact of their gift. The moment where a donor meets the student recipient of a scholarship or the faculty holder of the teaching chair is a powerful stewardship opportunity that reflects the deeply
personal and lasting effect of an endowment gift. These interpersonal moments humanize endowment giving. They create powerful stories of personal and professional enrichment for the donor while also celebrating the donor as an inspiration to the rest of the school community.
These stewardship opportunities can be particularly important for emerging philanthropists. Families that are building their wealth might establish a fund for a partial scholarship, hoping to grow it over time to a full scholarship. The fund provides natural opportunities to update the donors and to deepen their relationship with the school. For families with multiple connections to a school, a family fund provides opportunities to cement a common bond and allows multiple members to participate meaningfully, regardless of capacity.
A word of caution, though: stewardship and recognition of very small endowment funds is difficult. Not only are small funds an administrative headache for the business office, but their returns are so small that recognition opportunities are limited. For example, a $10,000 endowed fund generates just $500 annually at a standard 5% draw. To avoid this, many schools have set minimums for establishing named endowed funds to ensure that the administrative costs are worthwhile—perhaps $50,000 for a faculty development fund, $500,000 for a partial scholarship, and so forth. A higher threshold of investment also has the added benefit of ensuring that the stewardship opportunities are more meaningful: now the development staff is sharing updates on the material impact of a $2,500 travel grant or $25,000 scholarship.
3. Demystify Endowment Mechanics
Even with demonstrated impact and recognition opportunities, a school risks struggling with endowment giving if it hasn’t clearly explained what an endowment is. We often take for granted that our donors and school communities have a shared understanding of what an endowment is and how it functions, but without regular illustration of the basics of how it is utilized, donors are left to think of endowment as little more than that nebulous savings account. Without explanations and illustrations of endowment mechanics, the endowment can seem like an abstract data point that merely reflects a school’s competitive position in the marketplace, but that has little bearing on daily operations of the school.
Few donors will understand the ins and outs of school financial management. (Even the trustees on a school’s finance committee might be surprisingly misinformed about the role of an endowment in the school’s revenue strategy!) For example, donors may equate endowments with reserve funds, even though endowed assets often have legally binding restrictions on their usage.
Schools can demystify the endowment through regular updates and examples of uses of endowment funds. For instance, a recurring feature in the school magazine could highlight a faculty chairholder and share the donor story behind the gift. Or setting and sharing a goal for long-term endowment growth that provides more opportunities to articulate the impact of the incremental gains that, over time, lead to a larger endowment. This becomes particularly important when a school is prepared to show the human-scale impact of the endowment today and what the potential impact will be from a right-sized endowment.
4. Teach School Finance 101
Beyond defining endowment and its mechanics, it’s essential to provide a clear understanding of how the endowment functions within the operating budget. Schools have limited revenue sources, typically defined by tuition, voluntary support (annual giving), and the draw on endowment income. Schools that have little or no contributed endowment income to their operating budget put tremendous pressure on tuition as the primary source of revenue. While many schools publish pie charts showing the revenue breakdown for tuition, annual fund contributions, and investment income, few schools take the extra step to explain the key role of each pie slice and, specifically, how a larger endowment – and the subsequent endowment draw – becomes critical in containing the growth of tuition. Regular communication outlining the role of each revenue source creates important context and helps even those closest to the school (Board members, insiders, and leadership) understand the need to raise endowment funds. A school might consider using an interview feature in a school publication, a website landing page, or a campaign salon event to help donors understand the important endowment metrics and their role in the broader financial strategy of the school.
5. Creating and Nurturing a Gift Planning Culture
Planned giving is one of the most effective opportunities to grow an endowment over the long term. Donors may be able to stretch in their support for the school in a way they couldn’t with just a cash gift.
Small schools may not feel equipped to handle complex planned gift conversations. Some schools leverage the experience of alumni and parents with wealth management expertise to be informal pro bono advisors to donors considering a planned gift. And there are several firms that provide off-the-shelf planned giving website plug-ins for smaller institutions.
The most successful planned giving programs nurture relationships when donors are starting to build their legacy. A school might begin conversations about joining the bequest society when donors are in their 40s, 50s, and 60s. Including basic questions like “have you considered including our school in your estate plans?” in regular annual fund and campaign solicitations can inspire donors to think differently about their legacies and to move beyond thinking that cash gifts are their only philanthropic option.
Our experience at CCS suggests that many donors, particularly alumni, increase their annual fund giving after documenting a planned gift intention. Through their long-term investment in their school, they come to feel more ownership and commitment to the institution, both today and in the future.
Establishing a bequest society is easy and provides a straightforward recognition and stewardship opportunity, as well. A school can recognize donors in every issue of the school magazine, on a plaque on campus, and through profiles on the website. Regularly featuring bequest society members in the school magazine and featuring them prominently on the website will provide compelling stories of those who are committed to making a profound and lasting impact on generations of students and faculty.
Yes, it is possible to raise funds for endowment. With thoughtful communication, a school can make endowment fundraising as tangible as fundraising for capital projects. Context matters, though: clearly communicating the role of the endowment in the broader financial strategy of the school, along with the power of planned gifts to grow the endowment, help to build a culture of endowment giving.
Creating recognition and stewardship opportunities and demonstrating human-scale impact are critical steps to make the endowment a tangible, rewarding gift opportunity.