Quasi endowments play a big role in non-profit organizations being able to support themselves. Endowments, in general, refer to investments that are made by the nonprofit organization. When these investments prove to be profitable, this income can be used to pay salaries, buy equipment, and whatever else the non-profit organization deems to be necessary.
Quasi Endowments vs Endowments
Quasi endowments and regular endowments are very similar. As mentioned above, it is a sum of money that is invested by the non-profit organization, the proceeds of which can be used by the non-profit however is seen fit.
Quasi Endowments vs Endowment Principle
The origin of the money in the case of quasi endowments, is the same as in the case of regular endowments. Often, this money will come from a single donor - either a person or a company - and these donors have some say as to the type of investments that have to be considered with their money.
However, the difference between the principal amount of a quasi endowment and a regular endowment is the period of time over which that money needs to be kept in investments.
In the case of a regular endowment, the principle needs to be kept permanently in most cases, and invested in certain assets if specified by the donor. However, the quasi endowments come with a specified time period that they need to be held in principle, and can then be spent however the non-profit sees which you can read more about in this PDF.
In some cases, where a period of time is not specified, the people in charge of the funds - usually the board of directors - may have the authority to terminate restrictions on the funds and allow for their distribution.
Advantages of Quasi Endowments
Immediate Financial Advantages of Quasi Endowments
There are multiple advantages of quasi endowments, particularly for newer non-profits. In the case of regular endowments, the profit generated is the only money that can be distributed and actually used by the non-profit for their primary purpose. Because the source of this income is usually dividends, as any growth needs to stay invested, this means that the sum of money generated can be quite small, especially if you are a newer non-profit with fewer investors.
However, because a quasi endowment allows you to access the principle at some point, this would provide a great deal of money at once, which can be used to further the cause of the non-profit, and even draw in more investors due to visible activity.
Flexibility of Quasi Endowments
Quasi endowments are flexible, mainly because of the availability of large sums of money. However, quasi endowments also provide flexibility throughout time.
Any decisions that are made by the current non-profit chairs or directors regarding the money can be changed by the future custodians. This means that, should the non-profit be in need of large sums of money at any point in the future, they will be able to make use of the principle of the quasi endowment.
This is particularly useful as the future of income, especially investment related income is not always predictable. Dividends are not a requirement for any companies or index funds and can stop at any time.
Additionally, no matter how diverse the investments of the non-profit, and how the market has proven to change in the past, it is never a guarantee of how it will do in the future.
How to Donate to a Quasi Endowment
If you wish to donate to a non-profit, and you want your donation to be used in a quasi endowment rather than a regular endowment by whatever non-profit you decide on, it is easy to do so.
A regular endowment requires the donor to simply specify with your donation that it is to be held permanently in the form of an endowment, specifying the particular investment if you wish to do so.
You can do exactly the same for a quasi endowment, specifying, upon completion of the donation, that you want the funds to be invested but that the principle may be used at any point, or after a set amount of time. It is, however, essential that the non-profit has already established a quasi endowment fund, or you will be unable to donate towards it.
Establishing a Quasi Endowment Fund
There are two ways in which a quasi endowment fund can be established. The first is through the use of donated funds specified for the quasi endowment fund, or donated funds with non-specified purposes. The second is through additional revenue brought in by the non-profit.
It is important to note that there are no minimum funds required to set up a quasi endowment fund, although it is recommended that the non-profit has several months of operating expenses available to it in cash at all times.
Then the legal policies need to be addressed. These will specify the parameters of the quasi endowment fund such as what will make up the principle, how the profit will be used etc.
The final step is to start investing.
Quasi Endowment Funds Conclusion
Quasi endowment funds are a great way to make sure that any money that you invest in a company is being put to good use through investments that will support the non-profit for a long time, but also ensuring that the money will become available at any time if the organization needs it.
If you truly believe in a non-profit, and know that they will manage the funds well, this is the most beneficial option for those that need the non-profit and its work.
If you are considering starting up your own non-profit, it may be worthwhile to consider opening a quasi endowment fund, however, make sure that you have enough cash on hand before you start investing. If you are unsure about whether a quasi endowment fund or a regular endowment fund is the better option for you, remember that you do not necessarily have to choose. As long as you are able to manage the money, you could open both and leave it up to the donors to decide where their money goes.
After understanding Quasi Endowments, you might be also interested in how do Churches make money?