A new way forward? Museum makes endowment its biggest revenue source.

Judith H. Dobrzynski, The Wall Street Journal, 1/29/13

Quietly, the Peabody Essex Museum [in Salem, MA] has [retooled] the traditional business model for museums. Currently, while some American art museums receive some government support, most depend on three main sources of money: earned income; revenue drawn from their endowments; and annual contributions, which too often provide the largest part. To ensure a sustained future, "we said we need to move from a model that disproportionately depends on annually raised money," [PEM director Dan L. Monroe] explained. So, since 2006, the museum has raised more than $570 million toward a $650 million goal, with the bulk, $350 million, earmarked for the endowment. Combining the new $350 million with the museum's existing endowment will give PEM a healthy $630 million nest egg. By 2017, when the campaign is complete, the Peabody Essex expects to finance 58% of its annual budget (projected at $35 million, up from $23 million in 2012) from the endowment. That compares with 25% in 2011. It sounds simple enough. But conventional wisdom dictates that raising endowment money is too tough to tackle. "It's a self-supported vicious circle that we have gotten ourselves into as a field," Mr. Monroe says, "that people will only give to a new building where they can put their name on it." Donors, [he] says, have been receptive to the idea that it's far more important to have an impact on people's lives than it is to put their name on a building. Mr. Monroe readily admits that the fundraising dynamic is different in New England than it is in New York or on the West Coast. "New Englanders understand endowments better," he says, and they seem to be less interested in the naming game. Other museums may not be able to attain the PEM model. But it has a certain undeniable logic.

Kevin Spacey seeks �20 million endowment before departing London's Old Vic

Mark Shenton, Playbill.com, 1/24/13

Oscar winner Kevin Spacey, who has been artistic director of London's Old Vic since 2003, has revealed his plans to step down from the venue in 2015, but is seeking to put in place a �20 million endowment fund before that to secure the building's future. In a statement to the UK's Daily Telegraph, he said, "I'm now planning to leave in 2015 and am determined to raise �20 million by then as an endowment fund to make the theatre is fit for the 21st century. We can then use the �20 million to give us �1 million-a-year income to help refurbish the theatre -- like more ladies loos and more bar room." Last June the Old Vic was one of 34 arts and heritage organizations to be made an award under the Catalyst, an endowments program initiated by the UK government's Department for Culture, Media and Sports, Arts Council England and the Heritage Lottery Fund, designed to enable organizations to attract private funding and build endowments that can provide an annual income. The Old Vic was duly awarded �5 million, conditional on the theatre itself raising a further �15 million in match funding over the next three years. The theatre will use this grant in the long term to provide support for production, community and education programming, as well as for the upkeep of the building.

Strength in numbers: Missouri arts orgs collaborate on endowment fundraising

Leah Hamilton, Americans for the Arts blog, 12/13/12

Springfield, MO is nationally recognized as a collaborative community [and this] has helped [it] weather the recession. More than 30 local [arts] groups share The Creamery Arts Center. The 35,000-square-foot building includes administrative offices, an exhibition hall, board room, library, classroom, film editing bay, costume shop, and set design/fabrication studio. As the arts groups began to "live" together around 2002, a unique spirit of collaboration emerged along with the need for long-term strategies to sustain the good work of the arts organizations, their programs and facilities. With no local tax mechanism dedicated to aid operating costs of area arts groups and few resources for individual groups to focus on legacy and major giving, the need to work together became apparent. In 2010, after two years of planning and many drafts of contracts, the Springfield Arts Collaborative was born. It uses the best practices of the "united arts fund" model with the one-stop-ask and the "arts center" model that incorporates funding for multiple organizations under one roof. However, the organizations all maintain their autonomy. The Community Foundation of the Ozarks manages the funds and their distribution. The uncertainty of the economy has presented difficulties, and being out of step with national funding trends of innovation and sustainability has proven a challenge. Despite that, there is over $6 million in verbal and written pledges to date. Funding innovation can be difficult and what is good for one community may not be for another, but, for Springfield, the time for building long-term funding security is now; not so we can replace annual fundraising efforts but so we can provide security that will allow our arts groups to take more risks and create better art. And we're doing it Springfield-style; addressing community needs with the arts through a partnership where the whole is greater than the sum of its parts.

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FROM TC: The Chronicle of Philanthropy's 2012 Endowment Management report includes a number of interesting articles on this topic, including the two below. Download the report for free by providing your name and email address.

Nonprofit endowment returns still sluggish in 2012, survey finds

Doug Donovan and Marisa L�pez-Rivera, Chronicle of Philanthropy

Endowments at the nation's charities and foundations are on pace for a second year in a row of lackluster investment returns in 2012, according to a new Chronicle survey. The survey of 268 organizations found that endowments recorded a median return on investment of 5% in 2011 and are seeing a similar rate of return [in 2012], compared with a 12% gain in 2010. The modest gains aren't enough to recover the steep losses many nonprofits incurred during the depths of the recession. For the 181 groups that reported five years of data, endowment values are 14.9% lower than in 2007 and 3% below 2008, the recession's first full year. Still, nonprofits are pressing ahead with new approaches. Among them:

> Reduce spending, opting to use less money from endowments for annual expenses.

> Turn to donors to add money to make up for losses, an especially popular approach at organizations that only recently started their endowments.

> Seek alternative investments, such as hedge funds, in the hope of generating bigger returns.

No matter what strategy groups are trying, timing made a big difference as the markets were so volatile in 2011. Groups whose fiscal years ended December 31 had flat growth on their investments, while those with fiscal years ending June 30 reported median 17% gains. Those results mirrored the wider stock market, which saw similar swings. The Standard & Poor's 500 index finished 2011 flat from 2010 but jumped 28% from July 1, 2010, to June 30, 2011.

Some nonprofits are using creative strategies to raise endowment gifts

Holly Hall, Chronicle of Philanthropy

The bad economy persuaded many charities they needed to bolster their endowments so they would always have a financial cushion for tough times. But for many donors that argument is a tough sell, so a growing number of nonprofits are finding ways to make endowment gifts more attractive. Edith Falk, head of the Campbell & Company consulting firm, says: "We are seeing more creative twists, simply because people struggle with the notion that 95% of their funds just sit there." Some nonprofits are persuading people who leave endowment gifts in their wills to provide an annual amount equal to what the endowment would earn if it were set up in the donor's lifetime. Other institutions are moving away from the tradition of taking a very small amount from the endowment each year and investing the rest. For example, universities are offering to take money from their own coffers to match the interest earned on an endowed gift. If an institution can't afford to appeal to donors by adding to the money earned by endowments, "look for an angel who will match payouts," advises Curt Simic, president emeritus at the Indiana University Foundation. "This really works." United Ways, which traditionally relied on bequests to build their endowments, have started more aggressive campaigns in recent years to ask living donors for endowed gifts. Some United Ways have persuaded companies to establish an endowment named for a chief executive or other leader. [Other endowment campaigns] show donors how such gifts can make a difference long into the future. United Ways explain that if they invest the money, they can use the earnings every year to replace the money a donor used to give annually -- and that will last long after the donor dies.