Austin Community Foundation is proud to partner with nonprofit organizations to administer funds that support their missions. As discussed in a prior blog post, professional investment management is one of the main benefits of establishing an agency fund at Austin Community Foundation. There are several different fund types to consider based on your organization’s financial situation.
How do I know if we are ready for an investment fund?
Typically, an organization is ready for an investment fund if it already has a healthy cash reserve that is not impacted by market risk. At ACF, investment funds are invested in quasi-endowed investment pools for a recommended minimum of 3-5 years to ensure they see a return and benefit from upswings in the market.
However, an investment fund is not the right tool if you are looking for a checking account or to withdraw funds frequently. That said, fund assets may be accessed without having to demonstrate a financial emergency or need, and the fund can be drawn down at any time.
Some organizations choose to manage an investment fund like an endowment by imposing internal controls (i.e., through your Board of Directors) on the amount that can be distributed annually, while still maintaining full access to the funds if needed.
How do I know if we are ready for an endowment fund?
An endowment fund is suitable for organizations that intend to maintain assets in perpetuity while providing annual support for programs and/or operations. ACF’s spending policy provides for a maximum amount available for distribution each year and is calculated as 4% of the average trailing 20 quarters of the fund’s market value.
An endowment fund is a good tool if you have significant capital on hand (or plan on fundraising for it) that you would like to keep intact in perpetuity to support the sustainability of your organization. Keep in mind that an endowment fund at ACF is permanent and can only be unrestricted on very rare occasions.
What if I have a donor who wants to make an endowed gift, but I am not ready for an endowment?
A designated fund can be a great vehicle for a long-standing donor who knows they are committed to supporting your organization and can provide the nonprofit with a sustainable and dependable source of support.
A designated fund is a charitable vehicle that allows individuals, families, organizations, or small groups to raise funds in support of a specified nonprofit organization. All distributions from a designated fund are made to the specified organization(s) identified at the time the fund is established. Designated funds may be either endowed or quasi-endowed, with the option to invest in the market.
We hope this information is helpful as you determine the right financial strategy for your organization. If you have any questions, please don’t hesitate to email me anytime. I’m here to help.