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What is an Endowment?

Mary McMahon
Updated May 16, 2024
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An endowment is a charitable donation in the form of real property, assets, or funds, usually given to an institution to support a specific goal. Common endowment recipients are libraries, universities, and hospitals. Generally, an endowment is quite large, and an institution often receives multiple endowments which are pooled in a common fund. Typically, the principal of the endowment is invested, and the interest is used to fund projects.

The practice of investing the principal, rather than spending it, allows an endowment to grow over time, rather than diminishing by being spent all at once. For universities especially, this practice allows the university to accrue large amounts of wealth which can be used to keep pace with other, competitive universities. Usually, part of the interest is reinvested every year, allowing the principle to grow more sizable. Most institutions leave the management of their endowments to private consulting firms which specialize in handling large accounts, and they tend to invest funds in low risk environments, to prevent losses.

Traditionally, endowment funds are used for major projects, such as constructing new buildings, funding an endowed professorship or chair, or sponsoring a lecture series. Often, the donors who gifted the endowment may placer restrictions on how it shall be used, stipulating, for example, that their endowment funds must be used to build a new university library. Typically, donors to private institutions are linked with the institution in some way; university alumni, for example, frequently donate sums to their alma maters to improve them.

In addition to private institutions such as universities and colleges, endowments are also used to create national funds, such as the National Endowment for the Arts and the National Endowment for the Humanities. These endowment funds are maintained to support artists and innovators in reaching their goals, and funds are typically disbursed in the form of grants. These types of endowments enrich society as a whole, and will benefit anyone who is willing to write a grant to apply for funds. In some cases, governments support national endowments to demonstrate a commitment to culture.

The form an endowment takes can vary. In some cases, an entire estate serves as an endowment, with the decedent stipulating in his or her will that the estate, barring some private bequests, is to be given to an institution. In other instances, a philanthropist will donate a large sum of money during his or her life time to support a cause. Some philanthropists distribute endowments through private foundations which have endowments of their own to finance their missions of supporting the arts, sciences, or other goals which they feel strongly about.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By lighth0se33 — On Jun 01, 2012

My best friend’s dad gave an endowment to her school to keep the art and music programs running. He had received a huge inheritance decades ago from his parents, and he wanted to use part of it to do something that would have a lasting effect.

He had heard that these programs were in danger of being cut, so he made the move. The school was very grateful to him for his generosity.

Since an endowment is an investment, the money isn’t in danger of disappearing. I know that the art and music teachers were relieved to hear that they could keep their jobs. I also know that the students like my friend who were musically and artistically talented were thankful to keep some of the only classes that really interested them and made them feel special.

By Oceana — On May 31, 2012

@orangey03 - Thank God for philanthropists and the endowments they leave behind! The newspaper where I work would most likely have shut down by now if it weren’t for an endowment from a wealthy man who spent most of his life as an editor.

He knew that newspapers nationwide were struggling, and we made no secret of the fact that we were having to make cutbacks. He knew that he would be dying soon, because he had the final stages of cancer, so he left us a huge endowment.

It will last for years, I’m sure. We will probably be in business for longer than most of our competition.

By orangey03 — On May 30, 2012

My local library is operating off of an endowment right now. Other libraries in surrounding towns have had to switch to being open only a few days a week, because they could not afford to pay their librarians and the costs of operation. My library is still open Monday through Saturday, thanks to a philanthropist who passed away recently and left a large endowment.

He loved to read, and he visited the library at least once a week. I think he was so rich that he spent most of his time reading books.

He didn’t buy books, because he went through them so quickly, and he wanted other people to be able to read them. He thought that libraries provided a great service to the public, and he wanted future generations to be able to take advantage of it.

By seag47 — On May 29, 2012

I kept seeing the term “endowment” used in my university’s newspaper when I was in college. I knew that it meant some type of fund, but I didn’t know exactly what it was.

That’s cool that part of it is always invested in something. I’m sure that if it were set up any other way, most universities would have drained their funds dry by now.

I think that an endowment is a great way to ensure that you always have a little bit of money, no matter how tough times get. If I were to be in charge of a university’s funding, I would definitely want endowments to remain in place.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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