Endowment Management in Charities – Part 1

Drawing on a substantial body of thought leadership by Director, Academic & Education, Gordon Cox, this article marks the first in a three-part series exploring some of the most critical and often overlooked aspects of fundraising for endowment and endowment management in UK charities (universities, schools, education, arts, heritage, museums, environment, health, animal welfare, international development and more).

While endowment has long played a foundational role in the financial resilience of institutions like the University of Oxford, University of Cambridge and the Church of England, its broader potential across the sector remains under-realised. In a time of increasing financial pressure and shifting funding models, it’s time to revisit what endowment means, how it’s managed, and why it matters.

This opening piece focuses on the importance of good endowment management, not just investment performance, but also governance, understanding, and stewardship practices that underpin long-term success. The second and third articles will explore investment and fundraising for endowment, offering practical suggestions and provocations for institutions ready to think beyond the next budget cycle.

The Importance of Good Endowment Management (It’s Not Just About Investment)

In the UK, we’ve made progress in streamlining endowment management—but we’re still grappling with legacy quirks and missed opportunities. Passive stewardship of endowment funds, especially across governance, finance, and fundraising, is rarely in the donor’s best interest. Donor confidence in endowment funds and how they are managed will only increase giving. Before we talk about growing charity endowment or launching a campaign, we must first ensure the right management structures are in place.

Starting the fundamentals: Governance, Agreements and Long-Term Planning

Endowment management must be future proof. That means:

• Drafting gift agreements with foresight. What if the cause and need funded by the endowment no longer exists? What if costs rise beyond projections?
• Including ‘fallow’ clauses to allow for temporary pauses in spending.
• Permitting unspent income to be reinvested into the principal to preserve long-term value.

Why Charities Should Consider a Total Return Approach

Transitioning to a total return (definition below) approach can feel daunting, but it simplifies management and unlocks flexibility. The benefits were clear: greater clarity, better planning, and more strategic use of funds. Good endowment management strategies matter.

Building Internal Understanding Across Finance and Fundraising Teams

Endowment management is not just about investment performance. It’s about shared understanding across teams. Too often, finance colleagues claim to understand endowments, yet few can confidently explain the difference between capital, income, principal, permanent, expendable, restricted, and unrestricted funds.

We need to ensure:

• Basic fluency and a shared understanding in endowment terminology across fundraising, finance, and implementation teams (the spenders of budget).
• Clear roles and responsibilities, especially for finance teams managing spend and reporting to donors.
• Realistic timelines. Endowment gifts don’t behave like spend-down donations. You can’t spend what hasn’t been budgeted, and you can’t budget what hasn’t yet generated income.

Strategic Growth: Using Unrestricted Funds and Preserving Capital

Some institutions are already leading the way. Ultimately, improving endowment returns is in everyone’s interests. This raises two important considerations for good endowment management strategies:

• Use unrestricted funds wisely. Topping up your charity endowment with spend-down gifts (when allowed) eg legacies or lifetime giving can be a powerful long-term strategy.
• Preserve real capital value. Even if a gift is technically expendable, consider whether spending it down aligns with the donor’s intent. Ethical stewardship builds trust and encourages future giving.

Endowment: Simple in Theory, Complex in Practice

Endowment can appear deceptively straightforward, yet it is often complex, unless broken down clearly or approached holistically. This short piece highlights a few areas of good practice in  endowment management in UK charities. Donor confidence in endowment funds will grow as your confidence in working with charity endowment grows. Two further articles will follow, exploring investment and endowment fundraising in more depth.

The range of stakeholders involved can make an endowment feel almost impossible to navigate. You may think you know endowment, but there is always more to learn. There is an art to condensing its complexity into simplicity, and even the most experienced fundraising operations encounter unexpected challenges.

Next Steps: Strengthening Endowment Management in Your Organisation

If you would like to explore these issues further or discuss how altering your endowment management strategies could strengthen your organisation, I would be delighted to continue the conversation. Whether you are seeking clarity on governance, confidence in investment messaging, or inspiration for fundraising, there is huge value in approaching endowment as a shared journey. Email me at gordon@philanthropycompany.com.

Definitions:

• Endowment: An endowment is a gift of money that is made to an institution or community in order to provide it with an annual income. (Collins Dictionary)
• Expendable endowment: capital is invested for a specified period after which I it can be spent
• Permanent endowment: capital can’t usually be easily spent
• Capital: original gift, subsequent gifts and historic unspent income
• Income: dividends, interest, rent, etc. Not just interest.
• Total Returns: Put simply, this approach allows any increase in the value of an investment to be used as income. (Charity Commission)