A charitable endowment is an investment fund that is generally overseen by some non-profit organization or a school. The assets in the portfolio may be donated by outside parties who are supporting a certain cause or goal. It is up to the endowment administrators and often a board of directors to make decisions that support the longevity of the fund. Most often, goals are attained by protecting the money in the portfolio from losses and attempting to increase the value of the fund in the financial markets.
A number of different institutions might run a charitable endowment, including colleges and universities as well as non-profit organizations. Usually, there is a particular purpose tied to the portfolio. The funds could be used to finance college scholarships for qualifying students, for instance, or to be directed towards medical research. Money in a charitable endowment could really be used for any cause that the portfolio originators find to be worthy of additional funding. Organizers often outline the goals and purpose of an endowment in marketing material so that potential donors are aware of a fund's design.
Instead of allowing the money to grow at the current interest rates in a regional economy, fund administrators often allocate much of the capital to financial securities, including stocks and bonds. Given the benevolent nature of the donations, fund officials often take a conservative approach to increasing the value of the portfolio and avoid excessive risk. Normally, charitable endowment officers must receive the support of an external board of directors before making any significant changes to the way that assets are distributed.
To keep public participants aware of the investment performance of the portfolio, charitable endowment officials generally publish a financial report each year. In the document, which is likely to be distributed to donors, the public can view any significant changes to management or in the way that capital is being invested. Internal staff could trade endowment funds in the financial markets or allocate the assets to outside money managers. When there is a shift in the oversight of this capital, it is likely to be recognized in an annual report.
There are specific benefits associated with charitable funds. For instance, donors are able to determine which cause is most significant and worthy of support, which can produce personal satisfaction. From an economic perspective, wealthy individuals and families who donate to charitable endowments are often privy to certain tax advantages.
