Hey philanthropy, here’s an investment tip: When it comes to getting results, one of the most under-used grant-making strategies around is building endowments for racial justice organizations.
By helping to secure a nonprofit’s financial future, endowments can give organizations the freedom to achieve their boldest dreams.
Such thinking led the Robert Wood Johnson Foundation to launch an endowment grant-making strategy in 2022 focused on equity. The project provided endowment funds of $5 million each to three racial justice organizations led by people of color: UnidosUS, Faith in Action, and the NAACP.
Richard Besser, CEO of the foundation, explained the effort this way: “If we truly believe in racial equity, why would we not want to ensure the long-term financial stability of organizations that are so directly committed to racial equity and racial justice? We see contributing to endowments as one of the ways to help do that.” His remarks are featured in a case study on endowment giving released Tuesday by my organization, the Bridgespan Group.
Unfortunately, despite its great potential for creating social change, endowment funding by foundations remains relatively rare and represents under one-third of their giving, according to a new study , also released Tuesday, by the Center for Effective Philanthropy .
The study found that among foundations that award $5 million or more a year, 69 percent don’t fund endowments. Just 4 percent of those that didn’t previously fund endowments said they would consider doing so in the future. For foundations engaged in such giving, 86 percent dedicate less than a quarter of their total grants to endowments. And more than half of foundations that give to nonprofit endowments direct those funds to museums and performing arts organizations.
This lack of attention to endowments hits organizations led by people of color especially hard. A 2022 Brigespan analysis of investment income at 56 social change nonprofits found that, on average, endowments at nonprofits led by people of color are nearly four times smaller than those of white-led organizations. And their average percentage of revenue is less than half that of white-led groups.
Endowment Zealot
I’ve spent the last several months studying this issue as part of the Bridgespan research team that produced our new case study. In the process, I’ve become something of a zealot for endowing nonprofits led by people of color. Once you see endowment giving as part of the solution for social change, you can’t unsee it.
In a former life, I spent close to a decade as a writer for Fortune magazine, so forgive me as I nerd out on money for a moment. An endowment fund is a pool of donated capital placed in an investment portfolio, which becomes a long-term revenue source for an organization. Unlike reserve funds, which are unrestricted much like a “rainy day” savings account, endowments usually have some restrictions on the use of assets to allow investments to grow and generate income.
While there are different legal forms of endowments, all function in similar ways: They transform large gifts into bite-size amounts that even the smallest nonprofits can absorb. For example, a $5 million endowment gift might generate $250,000 of income every year — forever. In this sense, endowments are the very definition of true wealth.
“I look at endowments as vision statements put into actual dollars,” says the Rev. Alvin Herring, Faith in Action’s recently retired executive director. Herring was the force behind the nonprofit’s endowment strategy, including securing the endowment grant from the Robert Wood Johnson Foundation.
Endowment funding does not replace other types of philanthropic giving. Endowed nonprofits, especially racial justice organizations, still require foundation grants to achieve their goals. RWJF’s endowment grants to the NAACP, UnidosUS, and Faith in Action, for instance, were made on top of the foundation’s normal annual funding to each organization. Endowment funding should be seen as an additional tool to complement other types of grants, each of which helps the organization meet different needs.
John H. Jackson, CEO of the Schott Foundation for Public Education, believes endowment funding should be a common part of any philanthropic portfolio. In 2022, under Jackson’s leadership, Schott launched EndowNow, a campaign to encourage its philanthropic peers to join the movement to endow organizations led by people of color. As part of that campaign, Schott invited fellow grant makers to invest in the Racial Justice in Education Endowment Collaborative Fund, the first fund of its kind to raise capital for endowments. In the campaign’s first 20 months, it has raised $5.5 million toward a goal of $30 million by 2027.
“It is a journey,” Jackson told me, acknowledging the steep fundraising hill left to climb. But he is quick to point out that philanthropy is well versed in the value and strategic purpose of endowments since that’s how most of them are funded.
Philanthropy Power Source
Endowments are “philanthropy’s power source,” Jackson says. “That’s how we plan. That’s how we maintain our programmatic momentum. And yet, for most organizations that we work with, that we care about, we haven’t taken the strategic step to provide them with the same level of sustainable funding — the same level of power.”
Jackson acknowledged that as a Black leader in philanthropy, the EndowNow campaign is personal. Over Zoom I nodded in solidarity because I felt it, too. My mind immediately went to Alisha B. Wormsley, an interdisciplinary artist best known for her installation of black billboards that state simply in bold white print: There Are Black People in the Future.
First appearing in 2017 in a gentrifying neighborhood in Wormsley’s hometown of Pittsburgh, the billboards have since been replicated in Detroit; Charlotte, N.C.; New York City; Kansas City, Mo.; Houston, Oakland, London, Accra in Ghana, and Qatar. Her message is memorable because it’s so obvious — a reminder that should never be necessary but can sometimes feel needed.
Wormsley’s words should serve as inspiration for grant makers who still aren’t convinced of the value of giving to nonprofit endowments. That’s because endowment funding can ensure there are Black-led organizations in the future. In other words, it is a simple and obvious strategy for any foundation committed to creating a more equitable world.