What is an Endowment?

The definition of “endow” is “to provide an income.” Let’s take the example of Denise Beaulieu, the attendant who took our money each day for parking in the building where the Foundation offices were located. At her death, Ms. Beaulieu left her entire estate, $77,000, to the Foundation to create an endowment for the benefit of the El Paso Chapter of the American Red Cross.

The $77,000 was deposited with other contributions to the Foundation and invested by professional money managers using guidelines established by the Board of the Foundation. Each year the beneficiary of the fund, the Red Cross, gets 5% of the year-end fund balance.

To combat the impact of inflation, the endowment managers use a strategy called “asset allocation ,” whereby a combination of stocks and bonds maintains at least the real value of the fund (the original gift value plus inflation) and smoothes out the short term “roller coaster” ride which is associated with investing in the stock market.

This strategy leads to an increase of the grantmaking power of an endowment fund. In the case of Denise Beaulieu, her fund grew to $116,800 between 1983 and 2003. That means that the annual contribution from her fund to the Red Cross has also increased through the years.  That is the power of an endowment.