On 4th November 2022, Arts Council England (ACE) announced which organisations have gained or lost National Portfolio Organisation (NPO) status. NPOs will receive three-year funding support from ACE, starting in April 2023 and decisions were made in line with the government policy of “Levelling Up”. Funding of £446M will be shared by a total of 990 arts and culture organisations; but many organisations heard the unwelcome news that they would be receiving less funding, or none at all.

Reactions to these cuts have been profound and challenging. They come at a difficult time as arts organisations are still recovering from the impact of the pandemic, the current cost-of-living crisis is likely to hit audience numbers, and venue-based organisations will be facing increased energy bills.  Arts organisations have always struggled to fund operating costs and find income to support core activity.  In the face of shocks, such as a sudden reduction in support, they will need to turn to philanthropy at short notice, in order to deliver their mission and support the communities they serve.

Very few arts organisations in the UK have endowments to draw into at moments of crisis; those that do have are in a stronger position. Within arts fundraising it is very difficult to look beyond immediate needs.  The shock that many have experienced this week is a wakeup call as to why endowment is so important.

What is endowment and how do you plan for it? Raising funding for an endowment is difficult, it takes a long time and is the most sophisticated ask of a donor.  But it can be the most rewarding for donors, and the best long-term funding you can secure.

To find out more about what an endowment is and the difference between restricted and unrestricted endowments read our earlier blog – http://www.globalphilanthropic.com/its-never-too-late-or-too-early-to-start-your-endowment-fund/

If you are thinking of establishing an endowment, here are some things you need to consider

  • Leadership – the organisation’s leadership needs to want to have an endowment and want to raise funding for an endowment. The board and senior management need to understand endowment and have the appetite to try and raise the funds.
  • Finance – be clear on your current financial position and how an endowment will resource your activities in the longer term.
  • Scope – the scope of the endowment needs to be defined at an early stage, ensuring it is deployed for the benefits of the organisation and avoiding dangers of being too restricted.
  • Structure – Make sure you have the right legal structure for accepting endowment gifts, and the right policies. This might include operating a separate trust, or control by an Investment and Finance Committee.
  • Sustainability – how can an endowment support your longer-term plans. Having an endowment will help you to have more stability but will also allow for more flexibility and innovation.
  • Recognition – could the endowment fund be named in perpetuity after a generous supporter? How could you structure named gifts and how many would you want?

If your organisation has decided to move ahead with endowment fundraising, how do go about raising the money?

  • The whole organisation needs to be mobilised to support endowment fundraising. Securing major donations will be essential and this needs the support of the whole organisation.
  • You need to develop your case for support – why should donors give to your cause, and why should they give to an endowment. It is a more sophisticated proposition for a donor, and the impact is further down the line. So, it needs a different positioning to your usual day to day fundraising for short term costs. You need to answer the questions about why your organisation is needed in perpetuity, what need you are responding to, and how your approach remains relevant and necessary.
  • You need trained, experienced fundraising staff (and volunteers) who are able to make the ask, manage your fundraising systems and steward your endowment gifts, which really does offer the opportunity for a lifetime of engagement.
  • You must identify potential, endowment donors, who you can approach for their support. Raising funds for an endowment requires big gifts, though there are ways that small donations can contribute too. It’s important to have a plan, do your research and have a realistic yet ambitious idea of what your donors could contribute. Major gifts for endowment tend to come from donors who know the organisation well, so take a long hard look at those who have already funded you, and buy into the whole mission of your organisation, and are already close to leadership.
  • Exploring the potential of match fundraising appeals to an endowment campaign can help you make the leap from one or two lead gifts towards your full target. Donors want the confidence to believe you can achieve your ambitions, so it is usually advisable to go public with the appeal once you have secured say 40% of the total income. Begin first with a quiet phase to identify a handful of potential donors and first describe to them how they would uniquely make the difference to a successful endowment strategy.
  • Link with your legacy programme – and give your legacy pledgers the opportunity to make an endowment gift that befits their lifetime.

There are a number of misconceptions about endowments. Often charities are concerned with replacing the short term with longer term fundraising. However, if you structure your endowment properly and make it flexible, you can do both. Organisations could also be concerned about the funding being tied up. This can be avoided by ensuring that any endowment gifts are not too restrictive. Another concern is that endowment fundraising can take too long. Yes, it does take a long time, but don’t wait for the next shock. You should start now.

Ten years ago, the government launched the Catalyst Fund which allowed arts and heritage organisations access to a pot of £55million as a match fund to help with the establishment of endowment. We hope this will be considered again, by government, to enable organisations to attract more philanthropy and build a long-term sustainable fund.

Having an endowment could be the key to unlocking a sustainable financing solution for your charity. We need to learn from the pandemic and plan for future shocks; there will be more. If you’re one of the lucky ones, who secured Arts Council NPO status in this round, you might want to use your three-year window of opportunity to build a sustainable funding programme for your organisation. Don’t squander this time by being missing the opportunity provided by establishing an endowment.