Endowment

An endowment is a financial asset, typically a pool of invested funds, that a nonprofit organization maintains to provide a stable, long-term source of income. The defining characteristic of an endowment is that the principal (the original donated amount) is kept intact in perpetuity or for a specified period, while only the investment returns — or a portion of them — are spent on the organization's operations or specific purposes. Most endowments follow a spending policy that allows annual withdrawals of 4-5% of the endowment's average market value, a rate designed to preserve purchasing power while providing predictable income. Universities are the most prominent holders of endowments, with Harvard's endowment exceeding $50 billion, but hospitals, museums, community foundations, and other nonprofits also maintain endowments. Endowment funds may be "true" (donor-restricted to remain permanently invested), "term" (restricted for a specific time period), or "quasi" (board-designated funds that could technically be spent but are treated as endowment). Large endowments have drawn criticism when organizations with billions in invested assets continue aggressive fundraising or raise tuition, fees, or admission prices. On Form 990, endowment information appears in Part V and the balance sheet, and NonprofitTruth incorporates net asset data into its reserve ratio calculations.