Financial endowment
A financial endowment is a legal structure for managing, and in many cases indefinitely perpetuating, a pool of financial resources, real estate, or other investments for a specific purpose according to the will of its founders and donors. Endowments are often structured so that the inflation-adjusted principal or "corpus" value is kept intact, while a portion of the fund can be spent each year, utilizing a prudent spending policy. File:20171005_Novo_Nordisk_Fonden_kontor_Hellerup_0035_.jpg|thumb|250px|The Novo Nordisk Foundation, the world's wealthiest foundation, is headquartered in Hellerup, a Copenhagen, Denmark suburb.File:B&M Gates Complex.jpg|thumb|250px|The Bill and Melinda Gates Foundation, the world's second wealthiest foundation, headquarters complex in Seattle as seen from the Space Needle
Endowments are often governed and managed either as a nonprofit corporation, a charitable foundation, or a private foundation that, while serving a good cause, might not qualify as a public charity. In some jurisdictions, it is common for endowed funds to be established as a trust independent of the organizations and the causes the endowment is meant to serve. Institutions that commonly manage endowments include academic institutions ; cultural institutions ; service organizations ; and religious organizations.
Private endowments are some of the wealthiest entities in the world, notably private higher education endowments. Harvard University's endowment is the largest academic endowment in the world., the Novo Nordisk Foundation and the Bill and Melinda Gates Foundation were the world's wealthiest private foundations, with an endowment of $167 billion and $67.3 billion, respectively.
Types
Most private endowments in the United States are governed by the Uniform Prudent Management of Institutional Funds Act which is based in part on the concept of donor intent that helps define what restrictions are imposed on the principal and earnings of the fund. Endowments in the United States are commonly categorized in one of four ways:- Restricted endowment. This is the type that is subject to UPMIFA in most states. The donor has stated that the gift is to be held permanently as an endowment, either for general purposes or for specific purposes.
- Quasi endowment funds are designated endowments by an organization's governing body rather than by the donor. Therefore, both the principal and the income may be accessed at the organization's discretion. Quasi endowment funds are still subject to any other donor restrictions or intent.
- Term endowment is created with a gift or funds set aside by the board which can be spent in their entirety upon a set date or occurrence, such as the death of the donor.
- Unrestricted endowments may be spent, saved, invested or distributed at the organization's discretion.
In the UK there are two types of endowment: permanent or expendable. Endowments have specific conditions attached and normally specify how income can be spent and whether this counts as restricted or unrestricted income for accounting purposes. A permanent endowment is one where the capital cannot be spent, while an expendable endowment is one which can be spent in certain circumstance, specified in the endowment document, but not otherwise.
Restrictions and donor intent
Endowment revenue can be restricted by donors to serve many purposes. Endowed professorships or scholarships restricted to a particular subject are common; in some places, a donor could fund a trust exclusively for the support of a pet. Ignoring the restriction is called "invading" the endowment. But change of circumstance or financial duress like bankruptcy can preclude carrying out the donor's intent. A court can alter the use of restricted endowment under a doctrine called cy-près meaning to find an alternative "as near as possible" to the donor's intent.History
The earliest endowed chairs were established by the Roman emperor and Stoic philosopher Marcus Aurelius in Athens in AD 176. Aurelius created one endowed chair for each of the major schools of philosophy: Platonism, Aristotelianism, Stoicism, and Epicureanism. Later, similar endowments were set up in some other major cities of the Roman Empire.Waqf, also known as 'hubous' or mortmain property, is a similar concept from Islamic law, which typically involves donating a building, plot of land or other assets for Muslim religious or charitable purposes with no intention of reclaiming the assets. The donated assets may be held by a charitable trust.
The two oldest known waqfiya documents are from the 9th century, while a third one dates from the early 10th century, all three within the Abbasid Period. The oldest dated waqfiya goes back to 876 CE, concerns a multi-volume Qur'an edition and is held by the Turkish and Islamic Arts Museum in Istanbul. A possibly older waqfiya is a papyrus held by the Louvre Museum in Paris, with no written date but considered to be from the mid-9th century.
The earliest known waqf in Egypt, founded by financial official Abū Bakr Muḥammad bin Ali al-Madhara'i in 919, is a pond called Birkat Ḥabash together with its surrounding orchards, whose revenue was to be used to operate a hydraulic complex and feed the poor. In India, wakfs are relatively common among Muslim communities and are regulated by the Central Wakf Council and governed by Wakf Act 1995.
In medieval Europe, endowments were used to establish chantries, where masses and prayers were said for the dead. Royal patrons endowed large foundations such as Reading Abbey, founded by Henry I after the death of his son in the White Ship disaster.
Modern college and university endowments
Academic institutions, such as colleges and universities, will frequently control an endowment fund that finances a portion of the operating or capital requirements of the institution. In addition to a general endowment fund, each university may also control a number of restricted endowments that are intended to fund specific areas within the institution. The most common examples are endowed professorships, and endowed scholarships or fellowships.The practice of endowing professorships began in the modern European university system in England on September 8, 1502, when Lady Margaret Beaufort, Countess of Richmond and grandmother to the future king Henry VIII, created the first endowed chairs in divinity at the universities of Oxford and Cambridge. Nearly 50 years later, Henry VIII established the Regius Professorships at both universities, this time in five subjects: divinity, civil law, Hebrew, Greek, and physic—the last of those corresponding to what is now known as medicine and basic sciences. Today, the University of Glasgow has fifteen Regius Professorships.
Private individuals also adopted the practice of endowing professorships. Isaac Newton held the Lucasian Chair of Mathematics at Cambridge beginning in 1669, more recently held by the celebrated physicist Stephen Hawking.
In the United States, the endowment is often integral to the financial health of educational institutions. Alumni or friends of institutions sometimes contribute capital to the endowment. The use of endowment funding is strong in the United States and Canada but less commonly found outside of North America, with the exceptions of Cambridge and Oxford universities. Endowment funds have also been created to support secondary and elementary school districts in several states in the United States.
Endowed professorships
An endowed professorship is a position permanently paid for with the revenue from an endowment fund specifically set up for that purpose. To set up an endowed chair generally costs between US$1 and $5 million at major research universities. Typically, the position is designated to be in a certain department. The donor might be allowed to name the position. Endowed professorships aid the university by providing a faculty member who does not have to be paid entirely out of the operating budget, allowing the university to either reduce its student-to-faculty ratio, a statistic used for college rankings and other institutional evaluations, or direct money that would otherwise have been spent on salaries toward other university needs. In addition, holding such a professorship is considered to be an honour in the academic world, and the university can use them to reward its best faculty or to recruit top professors from other institutions.Endowed faculty fellowships
An endowed faculty fellow is a position permanently paid for to recruit and retain new and/or junior professors who have already demonstrated superior teaching and research. The donor might be allowed to name the faculty fellowship. A faculty fellow appointment cultivates confidence and institutional loyalty, keeping the institution competitive over hiring and retention of talents.Endowed scholarships and fellowships
An endowed scholarship is tuition assistance that is permanently paid for by an organisation or individual with the revenue of an endowment fund specifically set up for that purpose. It can be either merit-based or need-based depending on university policy or donor preferences. Some universities will facilitate donors' meeting the students they are helping. The amount that must be donated to start an endowed scholarship can vary greatly.Fellowships are similar, although they are most commonly associated with graduate students. In addition to helping with tuition, they may also include a stipend. Fellowships with a stipend may encourage students to work on a doctorate. Frequently, teaching or working on research is a mandatory part of a fellowship.