The role of leadership in endowment development

In my first two posts I tried to focus on some strategic concerns about our field of endowment development at Jewish federations and pointed out many of the issues involved in growing our asset base and why I thought that endowment development was so important to the future growth of our system.

 

In this post I’d like to build out the role of lay leadership in endowment development.

 

Helping donors to see the validity and power in involving themselves with charities such as community foundations and federations is a life’s work.  Donors don’t tend to become “accidental philanthropists” to use the phrase of a close personal and professional colleague.  They make gifts because something has happened in their life experience which compels them to do so, they believe strongly in the financial and professional validity of charitable giving and most importantly someone has had a profound impact on their desire and knowledge of charitable opportunities.  Such a person can be a mentor, a child, a financial advisor or an executive with one of the charities they support or most importantly a peer.  In the world of Jewish philanthropy for over 100 years communities have relied on the power of volunteer involvement and ownership of the charitable product.  This ownership has had profound and intimate involvement in every aspect of what Jews have accomplished as a federated  system….perhaps more so than in many other non sectarian charitable organizations.

 

Our training as professionals has instilled in us the importance of involving lay leaders as partners.  The more complex the decision making around governance, finance, fund raising, internal operations, strategic planning and even grantmaking, the more systematic the involvement of our lay leadership. 

 

Endowment development is a crucial philanthropic resource which requires command of  a variety of  rather technical disciplines in order to be successful.  A particularly skilled leader once told me that “endowment development can’t be taught.    You learn by osmosis”.    She was an estate planner to one of the wealthiest donors in our community.  Is this true and what do we need to do in order to help our communities find and train their most successful leaders?

 

1.     Finding endowment leadership isn’t for the faint of heart.  The most sophisticated financial, investment and legal minds are attracted to this business and they are frequently intolerant of mistakes, lack of understanding of complex transactions and sloppy thinking.  Some operate on the periphery of what we do as an institution and are even unfamiliar with the work.

 

2.     The reasons that we need endowment leaders are several - to extend our reach in donor education and solicitation, to solve complex problems of the law, public policy and its impact on giving and investment and to provide leadership to our overall institutional advancement.  Great endowment leaders will motivate others along the way and make the case for endowment development in public places and among peer groups and to their clients. 

 

3.      Many times, the people we crave to take on important roles in our endowment campaigns are those who are most remote and difficult to access because of their business lives.  They simply do not have the time to relax and solve problems with you or if they do they will be able to take precious few minutes to do so. 

 

4.     Those who have actually created funds will understand the fund development process particularly well but may or may not be able to motivate others.  Because endowment development is a business which is not well understood by much of the generally philanthropic public we have to look even harder.   Someone perceived to be a potential leader may have served in many capacities with other charities in all likelihood.

 

5.     Corporate executives who support what a foundation or federation does may be best choices for an overall endowment chair while estate and tax planners may be best for the Professional Advisory committee.  Next gen leaders whose families have been philanthropically active are becoming increasingly visible as are women with either fund raising or professional background in this area or who are donors in their own right with or without their spouse.  Exceptions to every rule abound though.  Endowment leadership will frequently come from the financial and legal disciplines which provide the key components of what we do to secure gifts.  But there are historically comparatively few legal and financial pros who feel very comfortable asking their respective clients to make gifts. 

Growing the capacity of endowment development to meet needs in the Jewish Federation system

This is part one of a two part article. Part I: Background information deals with the Federations efforts to grow endowments and focuses on donor advised funds. Part II will deal with permanent endowments funds and suggestions for growth. These principles apply to all charities seeking to grow funds of this type.

In 2013 the JFNA’s annual endowment survey reported that total assets under management in the 151 federated communities was approximately 16 billion dollars.  Those same entities distributed 1.4 billion in grants in that year.  2014 data should be published later this year after JFNA reexamines the way in which it collects and reports the information. 

Endowment development in the Jewish federation system is the product of a long and distinguished history and has been one of the most productive philanthropic revenue streams for the Jewish community.  It is also a stream with significant unrealized potential, and one of the least understood.  Indeed, endowment contributions in 2013 amounted to $1.6 billion, a figure that continues to eclipse the collective total raised in the annual campaign by almost 67 percent.  As someone with a 30 plus year career in federation endowments both locally and nationally I feel a responsibility to remind leadership which is deeply concerned about the growth of our capacity to serve constituencies spread across the globe about the opportunities to be realized from continued endowment growth.

As many are aware, the biggest opportunity is the increasing participation in and growth of assets in donor advised funds which have been a trademark of Jewish federation endowments for over 40 years.   In 2013, donor advised were prevalent in over one half of the Jewish federations, and comprised almost $5 billion or 30 percent of the collective endowment assets.  80% of the 1.4 billion in grants originates from donor advised funds.   Almost 60% of that amount originates from donor advised funds.  These funds not permanent endowments but essentially philanthropic accounts which allow a donor or family to participate in giving and with the collaboration of federation (in this case) distribute all or more than the income generated.  They have been treated as endowments by our system for reporting purposes with our permanent funds but have significant differences in operation and mission.  During my last year on the job we determined to change the branding of our 2014 Annual Endowment survey to recognize this crucial difference. 

 When a former JFNA National Annual Campaign chair asked me “So what are we doing with all this money (alluding to the billions invested by our system )?” I had to remind him about the true nature of our asset base, the positive side of which is that grants from the donor advised funds make up approximately 20% of our Annual campaign revenue, although some communities informally report up to 30 or even 50% of their annual campaign contributions coming from this source (and various supporting organizations held within the system as well).  I call this complex revenue stream which emerges from the donor advised funds a virtual endowment for the system

Jewish federation endowments have a bifurcated asset base – the donor advised funds and all of the remaining types of permanent funds which have been contributed by generous donors since the turn of the last century.  While the federation system would treasure an endowment allocation like that of many universities (with substantially more permanent funds) in reality when it comes to endowment we are faced with a situation in which the vast bulk of these assets can only be termed “semi permanent” or even transitory.  The most important permanent endowment in the federation  system which we have tried to build over a period of over 20 years, the Permanent Annual Campaign endowment (PACE) has been marginally successful, serving to attract largely older donors, or those with a deeply engrained commitment to unrestricted giving to the annual campaign.  Every recent piece on giving over many years points to the desire by the younger generation to give with a focus (see recent publications from the Johnson Center at Grand Valley State University at Nextgendonors.org and 21/64 formerly of the Bronfman Philanthropies).  Women’s giving for endowment purposes in the system is focused on the Lion of Judah Endowment (LOJE), a highly marketed and successful form of giving which has tended to be topped out at $100,000 per donor because of the unique dynamics of giving and leadership in the system, which chose in the early years of the program to encourage endowing a gift of $100,000 rather than the entire (and frequently much larger) gift to the annual campaign.  Both PACE and LOJE focus on the totality of the annual campaign and therefore require a donor who is confident and desirous of supporting the mission and vision of the entire annual campaign as opposed to a particular project or activity.

Given the nature of our donor base and fund development in the system it should be no surprise that we have major communities with only 1% of their annual campaigns endowed but very large supporting  organizations pouring enormous sums into charitable activity of infinite variety but focusing in many other places beside the Annual campaign. 

In the next piece we will focus harder on permanent giving rather than donor advised funds and some expectations for endowment development and its impact on federation capacity to meet needs and some development suggestions for the professional.

 

Click here to read the second part of this article