The Perpetual Debate over Endowments
Charitable endowments are having a challenging moment. Despite the historical success of this medieval European charitable fund structure, the accumulation of capital for public benefit has always faced controversy. Endowments, which focus on long-term public benefit, have a built-in tension between capital and annual spending. Does the capital exist to provide steady future good, or could it be used better now?
Charitable purposes and estate donations
Estate planning is an exercise in time travel. It is impossible to predict the future, especially when the time gap between planning and death is often decades. Fast forward 25 years, a charity may not exist when the estate is distributed.
The End of Endowments
The economic swells of the last 18 months stress-tested the system of charitable endowments. Headlines announced spectacular losses to these long-term funds. My favourite was the headline to a Vanity Fair article that chronicled “Harvard’s Big, Dumb Financial Train Wreck.” The world biggest endowment lost $11 billion of its $36.9 billion.1 While it is tempting to chortle along with the voyeurs and cynics, Harvard is experiencing the worst financial crisis in its 373-year history. When the need to draw down capital is factored in, it will probably take more than a decade for the endowment to return to its peak.