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A financial endowment is a legal structure for managing, and in many cases indefinitely perpetuating, a pool of financial, real estate, or other investments for a specific purpose according to the will of its founders and donors.[1] Endowments are often structured so that the principal value is kept intact, while the investment income or a small part of the principal is available for use each year.

After the Heron Foundation

After the Heron Foundation's internal audit of its investments in 2011 uncovered an investment in a private prison that was directly contrary to the foundation's mission, they developed and then began to advocate for a four-part ethical framework to endowment investments conceptualized as Human Capital, Natural Capital, Civic Capital, and Financial Capital.[31]

Another example is the Ford Fo

Another example is the Ford Foundation's co-founding of the independent Native Arts and Culture Foundation in 2007. The Ford Foundation provided a portion of the initial endowment after self-initiated research into the foundation's financial support of Native and Indigenous artists and communities. This results of this research indicated "the inadequacy of philanthropic support for Native arts and artists", related feedback from an unnamed Native leader that "[o]nce [big foundations] put the stuff in place for an Indian program, then it is not usually funded very well. It lasts as long as the program officer who had an interest and then goes away" and recommended that an independent endowment be established and that "[n]ative leadership is crucial".[32]

Another approach to reforming endowments is the use of divestment campaigns to encourage endowments to not hold unethical investments. One of the earliest modern divestment campaigns was Disinvestment from South Africa which was used to protest apartheid policies. By the end of apartheid, more than 150 universities divested of South African investments, although it is not clear to what extent this campaign was responsible for ending the policy.[33]

A proactive version of divestment campaigns is impact investing, or mission investing which refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return."[34] Impact investments provide capital to address social and environmental issues.

Donor intentimpact investing, or mission investing which refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return."[34] Impact investments provide capital to address social and environmental issues.

The case of Leona Helmsley is often used to illustrate the downsides of the legal concept of donor intent as applied to endowments. In the 2000s, Helmsley bequested a multi-billion dollar trust to "the care and welfare of dogs".[35] This trust was estimated at the time to total 10 times more than the combined 2005 assets of all registered animal-related charities in the United States.

In 1914, Frederick Goff sought to eliminate the "dead hand" of organized philanthropy and so created the Cleveland Foundation: the first community foundation. He created a corporately structured foundation that could utilize community gifts in a responsive and need-appropriate manner. Scrutiny and control resided in the "live han

In 1914, Frederick Goff sought to eliminate the "dead hand" of organized philanthropy and so created the Cleveland Foundation: the first community foundation. He created a corporately structured foundation that could utilize community gifts in a responsive and need-appropriate manner. Scrutiny and control resided in the "live hand" of the public as opposed to the "dead hand" of the founders of private foundations.[36]

Research published in the American Economic Review indicates that major academic endowments often act in times of economic downturn in a way opposite of the intention of the endowment. This behavior is referred to as endowment hoarding, reflecting the way that economic downturns often lead to endowments decreasing their payouts rather than increasing them to compensate for the downturn.[37]

Large U.S.-based college and university endowments, which had posted large, highly publicized gains in the 1990s and 2000s, faced significant losses of principal in the 2008 economic downturn. Large U.S.-based college and university endowments, which had posted large, highly publicized gains in the 1990s and 2000s, faced significant losses of principal in the 2008 economic downturn. The Harvard University endowment, which held $37 billion in June 2008, was reduced to $26 billion by mid-2009.[38] Yale University, the pioneer of an approach that involved investing heavily in alternative investments such as real estate and private equity, reported an endowment of $16 billion as of September 2009, a 30% annualized loss that was more than predicted in December 2008.[39] At Stanford University, the endowment was reduced from $17 billion to $12 billion as of September 2009.[40] Brown University's endowment fell 27 percent to $2.04 billion in the fiscal year that ended June 30, 2009.[41] George Washington University lost 18% in that same fiscal year, down to $1.08 billion.[42]

In Canada, after the financial crisis in 2008, University of Toronto reported a loss of 31% ($545 million) of its previous year-end value in 2009. The loss is attributed to over-investment in hedge funds.[43]

Generally, endowment taxes are the taxation of financial endowments that otherwise not taxed due to their charitable, educational, or religious mission. Endowment taxes are typically enacted in response to criticisms that endowments are not operating as nonprofit organizations or that they have served as tax shelters, or that they are depriving local governments of essential property and other taxes.[44][45]

See also