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A quasi-endowment is a fund that is designated by an organization’s board of directors to be treated as an endowment but does not possess the same level of restriction as a true endowment. This type of fund can be used for operational costs, special projects, or other organizational needs, but the governing body can decide to convert it back to unrestricted funds if needed. Quasi-endowments are not legally restricted, meaning that while they are intended to be held for long-term investment and stability, their principal can be used to meet immediate financial needs if the board chooses to do so. This flexibility provides nonprofits with access to funds during emergencies or when short-term cash flow needs arise, differentiating them from traditional endowments, which are often restricted by donors and require a specific protocol for withdrawals.
While a quasi-endowment is flexible, it is still governed by decisions made by the board and is intended to be a long-term financial strategy; it is not entirely devoid of regulations or oversight.
A true endowment is established by a donor with specific restrictions on how the funds can be used, meaning the principal must be held in perpetuity and only the investment returns can be spent. In contrast, a quasi-endowment is created by the nonprofit itself and while it is treated like an endowment, the governing body has the discretion to use the principal.
Yes, a quasi-endowment can potentially be converted into a true endowment if a nonprofit receives donor contributions specifically aimed at that purpose, instituting legal restrictions on the funds.
Nonprofits should consider their operational costs, long-term financial goals, and potential for growth when deciding how much to allocate as a quasi-endowment, ensuring it aligns with their overall financial strategy and sustainability planning.