Endowing Nonprofits — One Powerful Way to Advance Equity

Endowments can be transformative for nonprofits, especially those representing traditionally underserved populations and working to close gaps, and deserve a closer look as an effective strategy for funders to advance equity. Recent CEP research shows that funding nonprofit endowments is not a widespread practice. Yet, endowments offer financial stability and innovation — both essential for impact — and are correlated with long-term growth and sustainability, which equity work requires.

For more than 55 years, UnidosUS (previously known as the National Council of La Raza) has been a leader in the fight for Latino civil rights, social justice, and opportunity. We have experienced notable growth since 2020: our staff has increased by one third; we experienced three years of historically high revenue; and we have deepened our leadership expertise. Recently, we articulated a new strategic direction focused on achieving far-reaching impact for Latinos by changing systems to close economic and social inequities for Latinos and building the power of Latinos to influence and hold these systems accountable. This new strategy is ambitious and requires new capacities, a shift in the way we think about our work, and additional, flexible, and multiyear resources.

UnidosUS was able to develop this bold strategy because our philanthropic partners have fostered our ability to evolve with a focus on innovation, complexity, and impact. One element that has laid the foundation for our sustainability is the establishment of the Unidos Investment Fund, our endowment.

What an Endowment Enabled UnidosUS to Do

The UnidosUS endowment was seeded with an initial “capital depletion” grant from the Ford Foundation in 2000. Instead of funding the organization with an annual grant spread out over multiple years, Ford provided “forward funding” in a single tranche. Ford also provided substantive and technical support; for example, they recommended that the endowment be held by a separate entity to protect the asset and provided guidance in the development of our Investment Policy Statement to ensure the growth of funds over time. UnidosUS subsequently launched a five-year Empowering an American Community Campaign in November 2002 to establish a formal endowment and facilitate the purchase of the UnidosUS headquarters building three blocks from the White House. In 2022, the Robert Wood Johnson Foundation (RWJF) added another major tranche of funding to the endowment.

The existence of an endowment, along with other major gifts during the period coinciding with the COVID-19 pandemic, has been a major factor in UnidosUS’s ability to continue to advance its mission through:

• Critical programmatic investments: In 2020-2021, UnidosUS’s Esperanza Hope Fund and Esperanza Hope for All enabled us to plan and launch a major COVID-19 vaccination effort that nearly eliminated the disparity in initial vaccine take-up rates between Latinos and others.
• A series of grants to UnidosUS Affiliates: Together with our partner, the Raza Development Fund, the Affiliate Support Program helped support the longer-term financial sustainability of affiliates while simultaneously addressing unforeseen, unprecedented community demands on their resources, including ad hoc food distribution efforts, help with rent or utility bills, and access to health care.
• Support for advocacy to develop and execute on an inclusive public response to the pandemic.
• Room to expand our voice and leadership in national conversations, such as the creation of our Racial Equity Initiative, to elevate Latino perspectives in the public discourse on racial equity.

During this time, we were also able to make important investments in internal capacities essential to strengthening and sustaining a healthy organization, such as technology that supported remote work and human resources. Our continued focus on people management, professional development, and enhancing benefits for our staff has been especially meaningful in navigating workplace shifts.

While many of these efforts were supported by various sources, the safety net provided by our endowment enabled UnidosUS to take more risk, seed new efforts to meet critical needs without full funding in-hand, and retain more agency in setting our agenda based on the priorities of the community, rather than funder preferences. For example, our HOME Initiative seeks transformational change by creating four million new Hispanic homeowners by 2030.

Flexible and innovative funding allowed us to think outside the box and be more strategic about leveraging UnidosUS’s voice in the most effective ways. We have been able to plan for our long-term stability and national leadership role as it becomes clearer that the country’s future prosperity is inextricably tied to the well-being of the Latino community.

Endowments Are Not Without Challenge

However, endowments bring challenges, too. From our experience, this has meant added complexity with the creation of a related entity that has its own board and requires significant administration and management attention from executive staff. It also means building financial expertise to oversee investments, determine prudent payout levels, and continuously monitor the health of the fund.

Endowment fundraising can also result in decreased programmatic funding. Despite earlier assurances to the contrary, a few funders have declined to consider programmatic support to UnidosUS in subsequent years as a result of the large one-time gift to our endowment. Given their different purposes, endowment funding should accompany — not replace — programmatic funding. UnidosUS’s endowment has also imposed greater accountability on management for funding decisions, since funding priorities can no longer be attributed to external funders.

This requires managers to be more strategic and make choices, which some nonprofit managers are unaccustomed to.

On Balance, Endowments to Nonprofits Can Advance Equity

These challenges notwithstanding, in the context of continued economic disparities and debates on wealth creation to level the playing field, endowment giving to effective nonprofits can be especially relevant. More than two decades ago, I edited a book about Latino workers. Despite their hard work and major contributions to our economy, Latinos faced structural obstacles to upward mobility. Even now, with their status as essential to our economy cemented, and despite gains, the Latino wealth gap persists. New approaches and intentions — from all sectors — are needed to drive equity.

Moreover, especially now — when the growth of funders’ assets via record-high stock portfolios is coinciding with a large and growing list of persistent societal challenges, endowment funding to trusted grantees makes enormous sense. Instead of expanding the number of grant recipients when assets are high — inevitably resulting in severe cutbacks when assets contract — large endowment gifts can allow funders to meet their payout targets without creating grantee expectations that cannot be met indefinitely.

This is especially true since the state and local government and corporate funding relied on by many nonprofits also tends to decrease when foundation and individual donor funding contract due to economic downturns. Endowments enable trusted grantees to weather financial storms and allow them to align their investments according to their target population’s needs and strategic direction instead of funder interests.

It is time to be bold. Endowment investments to nonprofit organizations whose missions focus on closing social and economic inequities, and who elevate voices still missing from national conversations about our country’s future, represent a powerful tool toward building a more equitable and just society.

Sonia M. Pérez is chief operating officer of UnidosUS. Find her on LinkedIn. Charles Kamasaki contributed to this article.

Editor’s Note: CEP publishes a range of perspectives. The views expressed here are those of the authors, not necessarily those of CEP.