What goes into managing and growing a successful endowment? There are many important elements such as a committed board and staff members, knowledgeable and stable leadership, and strong financials and reputation.

Having reliable policies is also a necessity. These documents not only form the basis for decision making and strategy, but also give your donors confidence in your stewardship of their legacy. The following are four policies every organization needs to manage and grow their endowment funds.

Investment Policy

An investment policy specifies the goals that an endowment’s portfolio is trying to achieve; and the risks that it is willing to take to achieve them. While day-to-day investment decisions are usually left to a professional investment manager, the big picture decisions are up to the board of directors. Can your board answer these questions:

• How should we prioritize growth and preservation?
• What guidelines and constraints do we want to stay within?
• What monitoring and evaluation procedures should we adhere to?

These are all important questions that should be answered in an investment policy. In addition, it gives the opportunity to include background information about your organization and the endowment to provide insight for the investment manager.

Here are four considerations when creating your investment policy.

Spending Policy

A spending policy is concerned with one question in particular: how should we balance our level of spending to both support our mission today and grow the amount of support we can provide in the future?

Board members will try to make the best decision they can in this regard, considering the growth expectations of the portfolio and assuming inflation will reduce the purchasing power of an endowment’s assets over time. Best practice is to formalize a spending rule that, when calculated, provides a spending target or range of spending each year. The spending policy documents such a rule and the process for adjusting it over time.

Gift Acceptance Policy

Non-profits should have well defined procedures that provide a seamless gifting process for a donor. This process is more important for endowed gifts, since these tend to be larger, more complicated, and come from a wider variety of assets. A gift acceptance policy should include:

• A list of the types of gifts requiring special approval
• The process for accepting different types of gifts
• The process for acknowledging a gift and sending donors any relevant appraisal or tax forms

A gift acceptance policy is often front and center in discussions with donors and therefore plays a role in managing their expectations. Many organizations will post a copy of their policy on their website or make it easily accessible to interested donors.

Read more on the importance of a gift acceptance policy here.

Endowment Policy

Organizations have legal, stewardship, and record keeping obligations when it comes to endowments. The benefits are large, but there are costs to consider. As such, it’s recommended that organizations formalize policies for structuring and accepting endowed gifts via an endowment policy.

This can be a standalone policy or included within a gift agreement between a donor and the organization. Common items might include:

• Under what circumstances an organization will accept an endowed gift?
• What will be the minimum gift amount for a named fund?
• What kind of restrictions can a donor attach to a gift?
• Under what scenario might an agreement be amended?

An endowment policy helps to ensure a donor’s intent is understood and recorded for posterity. For additional information on endowments, we share governance and legal structure, funding, and investment insights here.

There are many benefits to having these four policies but creating them is no easy task. Manning & Napier is here to help. Our policy templates and guidance can help your organization create policies suitable to your unique situation that enable your organization to achieve its mission.

Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.