An endowment is a charitable donation in the form of real property, assets, or funds, usually given to an institution to support a specific goal. Common endowment recipients are libraries, universities, and hospitals. Generally, an endowment is quite large, and an institution often receives multiple endowments which are pooled in a common fund. Typically, the principal of the endowment is invested, and the interest is used to fund projects.
The practice of investing the principal, rather than spending it, allows an endowment to grow over time, rather than diminishing by being spent all at once. For universities especially, this practice allows the university to accrue large amounts of wealth which can be used to keep pace with other, competitive universities. Usually, part of the interest is reinvested every year, allowing the principle to grow more sizable. Most institutions leave the management of their endowments to private consulting firms which specialize in handling large accounts, and they tend to invest funds in low risk environments, to prevent losses.
Traditionally, endowment funds are used for major projects, such as constructing new buildings, funding an endowed professorship or chair, or sponsoring a lecture series. Often, the donors who gifted the endowment may placer restrictions on how it shall be used, stipulating, for example, that their endowment funds must be used to build a new university library. Typically, donors to private institutions are linked with the institution in some way; university alumni, for example, frequently donate sums to their alma maters to improve them.
In addition to private institutions such as universities and colleges, endowments are also used to create national funds, such as the National Endowment for the Arts and the National Endowment for the Humanities. These endowment funds are maintained to support artists and innovators in reaching their goals, and funds are typically disbursed in the form of grants. These types of endowments enrich society as a whole, and will benefit anyone who is willing to write a grant to apply for funds. In some cases, governments support national endowments to demonstrate a commitment to culture.
The form an endowment takes can vary. In some cases, an entire estate serves as an endowment, with the decedent stipulating in his or her will that the estate, barring some private bequests, is to be given to an institution. In other instances, a philanthropist will donate a large sum of money during his or her life time to support a cause. Some philanthropists distribute endowments through private foundations which have endowments of their own to finance their missions of supporting the arts, sciences, or other goals which they feel strongly about.