Putting Your Agency’s Endowment Fund with

The Community Foundation

Although the majority of the Community Foundation funds are created by individuals and families, many have been established by area nonprofit organizations as endowments to provide a permanent income stream to support their programs and operations.  These funds are invested by the Community Foundation and the earnings distributed back to the agency.  The Community Foundation currently manages over 20 “agency” funds for various organizations, including the Lyme Art Association, the United Way, Big Brothers Big Sisters and the Children’s Museum of Southeastern Connecticut.

Below are some of the advantages of choosing to partner with the Community Foundation for management of your agency fund.

Professional and Diversified Investment Management – When you decide to place your agency fund with the Community Foundation, it becomes a part of our pool of invested funds.  Investing as part of this pool, which is valued at apporximately $25 million, permits greater diversification of your fund across many more asset classes than would be possible investing it individually.  The Community Foundation pool of funds is managed using a diversified strategy intended to preserve the purchasing power of endowment assets in perpetuity, while at the same time generating a steady return for current purposes.  The pool is invested on a "total return" basis (combining capital appreciation and earned income), with a variety of asset classes used to lower volatility and risk.  Within each asset class, we retain highly skilled investment managers who specialize in that particular class.  To ensure that the Community Foundation's portfolio is managed effectively, we retain Russell Investment Company, an independent investment manager of managers.  Russell’s role is to oversee investment discipline and manager selection, to develop best strategies and appropriate benchmarks, and to closely monitor the performance, allocation, and style adherence of each of the fund managers.  For more information on the Community Foundation’s investments, please click here.

Fund Management Services – The Community Foundation provides several accounting and record keeping services to agency fundholders, such as annual fund statements, processing of new gifts and IRS gift acknowledgment letters, and income distributions to your organization.  We can also process and manage various types of gifts to the fund, including appreciated securities, real estate, closely held stock, insurance policies, tangible personal property, and bequests.

Planned Giving and Endowment Fundraising Support – Our experienced professional staff is available to meet with your agency’s staff, board, and donors to discuss planned giving and major gifts.  We can issue charitable gift annuities on your behalf which will ultimately benefit your agency endowment.  For specific information on how the Community Foundation can help you develop or enhance your planned giving program, please refer to Planned Giving Services. 

Increased Donor Confidence – Having a fund with the Community Foundation affiliates your agency with a respected public charity with a 24 year history and assets of close to $30 million.   It sends a signal to your donors, existing and prospective, that you take endowment building and asset management seriously.  You are partnering with an organization that specializes in carefully stewarding and protecting charitable capital.  

Also, this affiliation can be especially helpful if your organization is new to major gift fundraising, planned giving, or wishes to attract new donors.  Your Community Foundation fund can also provide increased exposure to potential donors and the general public, through listings in our publications, press releases, web page, and participation in Community Foundation meetings and events.

Automatic Calculation of Annual Spending from the Fund - The Community Foundation distributes to the agency a portion of its fund’s value each year according to a pre-determined spending formula.  This formula is carefully calculated to enable funds to grow over the long term while supporting annual distributions and staying ahead of inflation.  Each fund essentially has two accounts – a“principal” portion, and a“distribution” portion that temporarily holds cash to be distributed back to the agency.  To determine the annual distribution amount for your fund, the Community Foundation calculates the average value of the fund over the past 36 months, and transfers 5% of that value from the fund’s invested portion to its distribution portion.  That amount is then made available to your organization.  Alternatively, agencies may choose to reinvest these distributions to the principal portion of the fund at any time or build up a multi-year distribution portion.  Agencies may also request distributions that exceed the spending formula amount; such distribution requests will be addressed on a case by case basis. 

Built-in Fund Protection – The Community Foundation's ownership of the assets in the fund (see below) helps provide a layer of separation to ensure the fund is maintained in perpetuity.  This separation can provide a “buffer of protection” from excessive spending from your endowment to meet short-term needs, which can erode donor confidence, violate donor intent, and jeopardize the long-term health of your agency.  Putting the assets with the Community Foundation may also protect these assets from liability and litigation.

Important to Note

The Assets Become the Property of The Community Foundation – The agency’s fund assets technically become the property of the Community Foundation upon establishing the fund.  This is required by IRS regulations to maintain the Community Foundation’s status as a public charity; contributions to community foundation funds that are not controlled by the community foundation can result in the loss of significant tax benefits for donors.  Ultimate control of investments and disbursement is given to the board of the foundation.   The agreement establishing the endowment clearly states that the Community Foundation can use the funds only for the purposes expressed in the agreement, i.e. for the benefit of the agency or its successors.    The agency may request that the funds be returned under certain conditions, by a resolution of its board and concurrence by the Community Foundation’s board, as outlined in the signed Agency Fund agreement.

Variance Power – In the event that your agency ceases to exist, loses its nonprofit status, or the original purpose of the fund becomes irrelevant or impossible to achieve, the Community Foundation board maintains “variance power” to change the beneficiary or purpose of the fund.  Your agency may also designate a “contingency” or “default” beneficiary in the fund agreement.  Variance power helps assure donors their gifts will remain relevant in perpetuity.   In other words, if your agency ceases to exist, its endowment remains at the community foundation supporting purposes specified by your organization in the fund agreement or the next closest purpose. 

Fees – The annual investment fee for agency funds currently averages 0.8% of the fund value.  An annual administrative fee of 1% is also assessed to help cover costs associated with servicing the fund. The fees also support the Community Foundation’s larger efforts to strengthen southeastern Connecticut by providing leadership on key issues, helping to build the capacity of nonprofits, and encouraging responsible philanthropy by linking donors with community interests.