Nonprofits—universities and colleges in particular—are facing increasing financial strain, including program cuts, faculty layoffs, and a projected 13% decline in enrollment over the next 15 years. In some cases, institutions have attempted to use restricted endowment funds to cover operating expenses, triggering donor lawsuits and heightened regulatory scrutiny.
These budget pressures are not limited to higher education; they are a reality for nonprofit organizations of all sizes. Responsible stewardship of institutional assets has never been more critical.
While higher education provides a timely example, the lesson applies more broadly: every nonprofit with invested assets must distinguish between funds available for current operations and assets legally or strategically set aside for specific long-term purposes.
Endowment vs. Quasi-Endowment
Members of a board of directors often call all assets managed by a nonprofit “Endowment”. But what is the definition of an endowment?
An endowment is donor restricted. Those funds may be used only in accordance with the donor’s stated intent. If a nonprofit wants to change that intent, the institution generally must obtain donor permission or follow the legally permitted process for modification.
A quasi-endowment is a board-restricted pool of funds. Because the restriction is established by the board of directors rather than by a donor, the board may generally change the purpose or spending approach through the approval process outlined in the organization’s governing documents.
An Endowment Is Not a Checking Account
A common misconception is that a large endowment guarantees financial flexibility. True endowment assets are donor restricted for specific purposes (e.g., scholarships, specific programs, or faculty support) and cannot be used to cover general operational deficits.
Fiduciary stewardship requires endowed gifts to be spent in accordance with donor intent as documented in the gift agreement.
A nonprofit’s obligation is to balance immediate needs with the long-term preservation and growth of assets for future generations. Spending too aggressively can erode the endowment’s long-term value, while overly conservative spending may limit the institution’s ability to support current priorities.
Financial Pressure Demands Strong Governance
Mounting financial pressures—including declining enrollment, rising operating costs, and changing donor behaviors—heighten the responsibility of boards, investment committees, and financial leaders. Strong governance provides a consistent framework to evaluate critical questions:
- Are the spending policies sustainable given budget trends?
- Are donor restrictions properly understood, respected and tracked?
- Does the portfolio maintain sufficient liquidity for anticipated obligations?
Because leadership inevitably changes, documented processes and clear policies are essential to preserve institutional knowledge and maintain continuity across transitions.
Strong Stewardship Can Help Attract and Retain Quality Board Members
Serving on a nonprofit board can be both rewarding and challenging. When someone joins a nonprofit board, they legally accept fiduciary responsibilities. These responsibilities require oversight of an organization’s finances, investments, governance practices, and long-term sustainability.
As a result, prospective board members frequently evaluate more than the mission of an organization before accepting a board position. They may also seek to understand the organization’s financial position, governance structure, and decision-making processes. They are likely to ask some of the following questions:
- How are financial decisions made and documented?
- Does the organization have clearly defined governance policies?
- Are investment and spending decisions reviewed regularly?
- How are donor-restricted funds monitored and protected?
- Does the organization have an annual audit?
- May I review the latest IRS 990?
- What resources exist to help board members fulfill their fiduciary responsibilities?
Strong governance practices can help provide confidence that board members are operating within a thoughtful and well-defined framework. Clear policies, documented procedures, and disciplined oversight support better decision-making and help demonstrate that the organization takes its fiduciary obligations seriously.
For nonprofit leaders, effective stewardship can support board recruitment and retention by providing prospective board members with confidence that the organization has appropriate safeguards, oversight processes, and financial controls in place.
The Value of an Independent Fiduciary Perspective
Nonprofit investment management has become highly specialized, requiring ongoing market monitoring, manager due diligence, policy oversight, and regulatory awareness. Because volunteer board and committee members often have limited time to manage these responsibilities alongside other commitments, an independent institutional advisor can provide technical support, objective perspective, and continuity across leadership transitions.
Aligning Strategy with Institutional Objectives
Every institution operates under unique circumstances. An endowment portfolio must be structured around its specific operating budget, risk tolerance, liquidity needs, and future growth plans. When investment strategies remain closely aligned with these unique institutional objectives, endowments can provide reliable support during periods of uncertainty.
Proactive Planning Avoids Crisis
Financial challenges rarely develop overnight. Regular reviews of investment policies, spending assumptions, and liquidity needs allow boards to identify warning signs and evaluate tradeoffs before financial distress becomes visible. For smaller or resource-limited institutions, this disciplined planning is especially important.
The key takeaway is straightforward: strong fiduciary stewardship depends on knowing which assets are restricted, documenting how decisions are made, and reviewing spending policies before financial pressure forces difficult choices.
Ultimately, achieving long-term sustainability requires thoughtful governance, disciplined spending, and strategic alignment. Boards and committees that maintain a consistent fiduciary process will be best positioned to adapt, protect donor intent, and responsibly steward the resources entrusted to them.
This article is provided for informational and educational purposes only. The information presented is intended to offer general observations regarding nonprofit governance, fiduciary stewardship, and endowment management and should not be construed as legal, tax, accounting, investment, or other professional advice. Every organization's circumstances are unique, and readers should consult their legal, tax, accounting, and investment professionals regarding their specific situation. Any references to governance practices or fiduciary considerations are general in nature and may not apply to all organizations or jurisdictions.
