Nonprofit organizations sit at the center of American civic life. They employ more than 20 million people, deliver essential services across every sector, and support activities that range from scientific research to disaster relief. While endowments are often associated with elite universities, they are in fact used widely across the sector. They provide long-term financial stability for human service agencies, conservation groups, religious organizations, hospitals, museums, and thousands of smaller nonprofits that rely on steady income to sustain their missions.

Despite their importance, little is known about how nonprofit endowments are distributed, how they are invested, or how well they perform. Prior research has focused almost entirely on university endowments, which account for less than 2% of all nonprofit endowment funds. The much larger universe of smaller and more diverse endowments has rarely been examined in a systematic way.

In our paper, “The Risk, Reward, and Asset Allocation of Nonprofit Endowment Funds,” we compile the first comprehensive dataset covering the full universe of U.S. nonprofit endowments. Using IRS Form 990 filings from 2008 to 2020, we study nearly 375,000 nonprofit organizations, including about 40,000 that maintain endowment assets. We combine detailed investment disclosures on Schedule D with governance, compensation, and financial information on the main form to examine how endowment strategy and performance relate to organizational structures and oversight practices.

The results present a mixed picture. Endowments support mission scale and stability, but investment performance varies widely. Many funds underperform simple passive benchmarks, and governance practices are closely linked to these outcomes. For boards, senior executives, donors, and regulators, the findings highlight both the value of endowments and the challenges of overseeing them effectively. (more…)