Prepared for
The National Association
of
Endowed Presbyterian Churches
by
Dean R. Hoge, Ph.D. and Rev. Loren
Mead
Copyright ©1995, NAEPC
In April 1994 the National Association of Endowed Presbyterian Churches (NAEPC) , with the support of a grant from the Lilly Endowment, asked Professor Dean Hoge, Catholic University of America, and Rev. Loren Mead, former president of Alban Institute, to conduct a study of how endowed Presbyterian churches manage, utilize, view, and grow their invested funds.
The study took place in two parts: 1) a phone survey of 142 endowed churches having investments of $500,000 or more; and 2) a series of personal interviews and focus groups in five endowed churches. The main findings of the study follow.
- The median endowment was $1.5 million, and 14% of the churches had over $5 million in invested funds.
- On average, 26% of a church's total expenditure was supported by endowment funds.
- On average, 43% of endowment assets were invested in bonds, 42% in equities, 10% in money markets, CD's or cash equivalents, 2% in real estate, and 2% in other.
- A legal entity separate from the church controlled 22 percent of the endowments.
- Eighty-one percent (81%) of the churches had received gifts of $10,000 or more during the past three years. Of these churches 86% had received bequests, 65% gifts of cash or stock, 31% planned gifts, 12% real estate.
- Eighty-nine percent (89%) of the churches used endowment funds for their operating budget, 77% for mission and outreach, 68% for capital expenditures, and 51% for other specific purposes.
- For churches who employ the total return approach to measuring endowment performance, the higher the percent of endowment assets in bonds, the lower the total return percentage, and the higher the percent of assets in equities, the higher the total return percentage.
- Eighty-nine percent (89%) of the churches regularly communicated the amount and use of the endowment principal to the congregation, 95% regularly communicated the amount and use of endowment income to the congregation.
- Sixty-three percent of the churches were aware of the NAEPC before the survey, and 19% had attended an NAEPC conference in the last three years.
- The church leaders reported high interest in developing planned giving programs, in communicating with the congregation about the endowment, in the fiscal and fiduciary responsibilities of staff and church leaders, and in fundraising for the endowment.
To help interpret the data we divided the total sample in two ways. The first grouping divided the churches according to the size of their endowments. The second grouping divided the churches according to how much they depended on the endowment to support their annual church expenditure. For reasons listed on page 5 of the full report the following findings should be taken as exploratory and not as definitive. The findings are presented to raise questions about how various groupings of endowed churches might be similar or different from one another with regard to their endowments and to suggest avenues for future research.
Small endowment churches were defined as those churches with invested funds of $2 million or less. Medium endowment churches had invested funds between $2,000,001 and $5 million. Large endowment churches had invested funds of more than $5 million. When we moved from small to medium to large size endowment churches we found the following.
Endowment Size |
|||||
| Small | Medium | Large | |||
| $500,000 | $2,000,001 | $5,000,001 | |||
| to | to | to | |||
| $2,000,000 | $5,000,000 | $41,000,000 | |||
| N=91 | N=31 | N=20 | |||
| the average size of the church congregation increased | 625 | 966 | 1723 | ||
| the average percent of church expenditure supported by the endowment increased | 21% | 31% | 38% | ||
| the average annual giving per member increased | $458 | $477 | $565 | ||
| the percent of churches with in-house management decreased | 38% | 10% | 3% | ||
| the percent of churches which employed a total return approach to measure endowment performance increased | 24% | 42% | 50% | ||
| the average percent of endowment assets in equities increased | 38% | 46% | 53% | ||
| the percent of churches with written policies limiting the percentage of funds invested in equities increased | 30% | 58% | 70% | ||
| the percent of churches with written policies concerning socially responsible investment of funds increased | 14% | 33% | 50% | ||
| the average percent of the endowment market value earned by interest and dividends was | 6.0% | 5.3% | 4.3% | ||
| the average percent of the endowment market value distributed from the endowment was | 7.7% | 6.8% | 5.6% | ||
| the percent of churches who had endowment issues that were troubling to their church leaders remained similar | 58% | 71% | 59% | ||
-Low, Medium, and High Support Churches
Low support churches were defined as those which depend on their endowment for 12% or less of their total annual expenditure. Medium support churches depend on their endowments for 12.1% to 31% of their total expenditure. High support churches depend on their endowment for 31.1% to 90% of their total expenditure. When we moved from low to medium to high support churches we found the following.
Level of Support from Endowment |
|||||
| Low | Medium | High | |||
| 0-12% | 12.1-31% | 31.1-100% | |||
| N=44 | N=51 | N=47 | |||
| the average size of the church congregation decreased | 1,095 | 891 | 588 | ||
| the average annual giving per member decreased | $538 | $462 | $440 | ||
| the percent of churches with in-house management decreased | 32% | 31% | 19% | ||
| the percent of churches with written policies concerning the use of income from endowment funds decreased | 82% | 63% | 53% | ||
| the percent of churches with written policies concerning socially responsible investment of funds increased | 12% | 24% | 34% | ||
| the average percent of the endowment market value earned by interest on dividends was | 5.3% | 5.9% | 5.5% | ||
| the average percent of the endowment market value distributed from the endowment was | 5.4% | 8.6% | 7.3% | ||
| the percent of churches who used funds for their operating budget increased | 75% | 90% | 100% | ||
| the percent of churches who used funds for their capital expenditures increased | 57% | 63% | 83% | ||
| the percent of churches who had an education program on wills and planned giving decreased for high support churches | 50% | 51% | 26% | ||
| the percent of churches who had endowment issues that were troubling to their church leaders increased | 46% | 61% | 76% | ||
The findings on the relative size of the endowment and the level of dependence on the endowment clearly suggest that both the size of an endowment and the level of church dependence on an endowment have an impact on how churches use and manage their endowments.
Conversations with financial church leaders in five Presbyterian churches with large size endowments left us with the following impressions about endowments.
- The unique history of how each endowment was set up had a large influence on how it is viewed and used by the congregation.
- The level of dependence on the endowment varied widely, from 5% to 80%. Our impression was that the lower the dependence upon invested funds, the less the impingement of the funds upon normal church life and decision making.
- There seemed to be an absence of theological language in discussions about the funds. This might indicate a lack of integration between the religious and financial concerns of church life.
- Churches varied in the sophistication and completeness of written policy statements about the endowments. Often, members operate on the basis of the best present memory of what these policies are, making them less useful.
- We found that a tension often exists between those who advocate the conservation of funds (often the Trustees) and those who are enthusiastic about spending the funds (often the Session). We saw a notable amount of long-range planning for the future of endowments (which seemed essential for churches with larger endowments).
- All of the pastors in these congregations take a strong, hands-on role in the financial side of the congregation's life.
- "Elder statesmen" who serve as repositories of church history and conventional wisdom have a good deal of influence with other church members about how the endowments are managed and used. Money is a powerful actor in congregational dynamics. It seems that an enormous spiritual tensions exist wherever wealth is present.
- Even though no one in our meetings with church leaders was opposed to church endowments, there are ongoing questions about them. Are endowments helpful or detrimental to the overall mission of the church? Do endowments hurt annual stewardship? Is the term "endowment" an adequate term for all invested church funds? What is the best way to manage and grow endowments? The present study was not designed to clarify these arguments, such clarification belongs to future research projects.