A nonprofit with a few years under its belt will eventually ask itself, “Should we have an endowment?” And while this is not a straightforward decision, on balance, the answer is yes. From a fundraising perspective, a nonprofit endowment demonstrates to prospective donors that this is an organization that has meaningful financial support to fulfill its philanthropic mission. But also recognize that managing an endowment requires significant time and dedication from the board and staff to establish the objectives of the endowment and manage and monitor the investment performance. So what does that mean? Well, it means that the board, as a fiduciary, must adhere to the rules of UPMIFA.
What is UPMIFA?
UPMIFA stands for the Uniform Prudent Management of Institutional Funds Act. UPMIFA has three key provisions.
- First spending and investment guidelines dictated by the donor to an endowment override any standards set forth in UPMIFA.
- Second, the board must use prudence in selecting an investment professional, establishing investment guidelines and reviewing performance.
- And third, spending policies are established to ensure the original intent of the donation is maintained.
So why is it important for a nonprofit with an endowment to take UPMIFA seriously? Donors and important stakeholders can file a complaint with that nonprofit state attorney general if they believe that the board of directors is mismanaging the funds of the endowment. In fact, in March of 2021, Harvard University students, faculty and alumni filed a similar complaint with the Massachusetts Attorney General alleging that over $800 million of the Harvard Endowment was invested in the fossil fuel industry, which was a direct violation of the fiduciary duties of the governing board under the laws of the Commonwealth.
Regardless, strong policies and procedures increase the likelihood that the nonprofit’s endowment mission is funded sufficiently.
So if your nonprofit is seriously considering launching an endowment, please consult with an investment professional and a legal professional.
Talk to the financial experts at Fairlight Advisors to learn more about managing your nonprofit’s investments. Schedule a free consultation today!