May 27, 2004 | Read Time: 5 minutes
Related articles: View all of the advice and commentary from this special supplement on endowments
By HARVY LIPMAN
Nonprofit organizations are not required by law to disclose information about their endowments — and many prefer not to tell the public much about the size or operations of the funds.
While such organizations are required to report the value of their net assets at the end of the year on their informational tax returns, in most cases that figure is not equivalent to the organization’s endowment.
To figure out what nonprofit groups might have in their endowments and to learn more about how they operate, The Chronicle sent questionnaires to American nonprofit organizations that received at least $25-million from private sources or that reported they had restricted assets on their informational tax returns. The list of 407 organizations was obtained from GuideStar, a nonprofit group in Williamsburg, Va., that has entered information from the returns into a computer database.
Using data compiled by the National Association of College and University Business Officers, The Chronicle also asked the 25 colleges and universities with the largest endowments to fill out the survey, as well as the 25 wealthiest private foundations, drawn from The Chronicle of Philanthropy’s most-recent survey of foundations.
The survey drew responses from 240 organizations. Of those, 52 reported that they did not have endowments.
Numerous nonprofit organizations whose federal tax returns show combined assets of tens of billions of dollars did not participate in the survey, including the Bernice Pauahi Bishop Estate in Hawaii ($4.3-billion) and two of the four largest private foundations in the country — the Lilly Endowment (with net assets of $10.8-billion) and the Robert Wood Johnson Foundation ($7.8-billion).
In addition, two of the nation’s best-endowed higher-education institutions, Harvard and Columbia Universities, declined to participate. Their endowments are worth $19.3-billion and $4.2-billion respectively, according to information posted on each university’s Web site.
Harvard and Columbia, like many of the institutions that declined to provide data, said they had policies against filling out surveys. Both post the value of their endowment assets on their Web sites and do disclose endowment data to the business-officers group for its annual survey, but that survey does not make public the investment returns of individual institutions, as The Chronicle’s survey did.
Also declining were most private hospitals. Michael Gutnick, chief financial officer of Memorial Sloan-Kettering Cancer Center, in New York, said that listing the hospital’s endowment in The Chronicle would not be “an appropriate tool for us, and it could harm fund raising.”
Some charity watchdog organizations said they are concerned that too few groups are willing to tell the public details about their endowments.
“Disclosure of a nonprofit group’s endowment is of importance to the public,” said Rick Cohen, executive director of the National Committee for Responsive Philanthropy, a Washington watchdog group. “Donors certainly are interested in understanding the full financial picture of an organization. Constituents of a nonprofit have an interest in understanding whether assets in an endowment are being appropriately reserved for future use rather than being utilized for immediate purposes.”
The survey defined endowment assets as “all long-term investment assets, including those held for the nonprofit institution’s benefit by foundations or others, and assets such as real estate that are likely to be converted into financial assets.” It excluded pension funds. That definition is similar to the one used by the college business officers’ association.
The Chronicle asked several endowment managers and nonprofit-management experts to review the survey questionnaire before sending it out.
Some of the nonprofit groups asked to participate in the survey expressed concerns about the definition of the endowment and declined to fill out the questionnaire. “It is our view that the survey uses the term endowment very loosely,” wrote Greg Donaldson, national vice president for corporate communications at the American Cancer Society, in explaining why that organization chose not to fill out the form. “The survey results would not be meaningful, since they will only serve to mix true endowment assets with trusts over which we have no investment control.”
Several other groups also noted that part of their endowment is made up of trusts bequeathed to them, whose investments are controlled by banks or other trustees listed in donors’ bequests rather than the charity’s own investment committees.
Other organizations found the definition confusing.
At CARE USA, in Atlanta, Marshall Burke, the vice president for private support, said that in trying to comply with The Chronicle’s definition, staff members might have overstated its endowment as being worth $121.7-million.
“Our endowment is $12.4-million, but the survey asked for all long-term investments, so we did total up working capital that is invested over a period of years,” he said. For example, Mr. Burke said, CARE frequently receives multiple-year grants, and will invest those funds to earn interest until the time comes to spend the money. “They’re actually funds that will be paying for programs,” he said.
The vast majority of nonprofit groups in the survey never spend any of the principal in their endowments, but rather spend just a portion of the interest earned. In CARE’s case, all the money allocated for the multiple-year grants is scheduled to be spent.
Other organizations gave different reasons for declining to participate. Some were concerned their endowments were too small to be worth reporting. For example, Linda Taggart, director of advancement services at KCET, the public-broadcasting station in Los Angeles, said, “Our endowment is such a baby, maybe three donors gave us a little that has been sitting there historically. We’re in the process of planning a fund-raising campaign that will include an endowment component. Next year we would be able to answer your questions.”
Mary Greenbaum, chief investment officer for the New York Community Trust, said that the organization is made up of 200 different charitable trusts, each managed by independent trustees. “Giving out the aggregate information on all of them doesn’t reflect any policy for anyone,” she said. “We do not control the trustees.”
The Chronicle survey was compiled by Trevor Meyers, with assistance from John Pulley and Erin Strout.
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Section: Endowments
Volume 16, Issue 16, Page B2
