Museums play the long game with endowments

Over the past six years, the government has encouraged museums, galleries and other cultural organisations to focus more on philanthropy, including raising funds for endowments. But the initiative has had mixed success, reports Geraldine Kendall Adams
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Geraldine Kendall Adams
One of Jeremy Hunt’s flagship goals as the culture secretary – long before he started getting into rows with junior doctors – was to establish a US-style system of philanthropy for arts and culture in the UK.

A staple of the US sector that Hunt was keen to emulate was the concept of endowments: pots of money held in perpetuity and invested, with the interest providing a regular source of income. The value of endowments held by US museums is estimated at $14bn, and with his government forecasting years of austerity, Hunt believed that this funding source – little understood or practised in the UK sector at that time – could be one way of securing the future of cultural organisations over here.

So in 2012, the Department for Culture, Media and Sport, Arts Council England (ACE) and the Heritage Lottery Fund (HLF) launched Catalyst Endowments, a £56m pot of match funding that would give organisations a head start to establish their own endowments (the HLF went on to offer a further round of grants worth £10m the following year).

The programme was not without controversy; at the time, Arts and Business called for it to be put on hold for five to 10 years in order to grow fundraising and entrepreneurial skills within the sector. Meanwhile, the nature of endowments meant that very large investments would be available to just a few organisations – and the huge fundraising targets that needed to be hit to unlock a grant (match funding began at £500,000 and targets went up to £20m) excluded smaller and more diverse institutions from taking part.

In spite of the misgivings, the programme went ahead.

It is now getting into the home stretch: ACE handed out the last awards of its endowment strand last year, while the final cohort of HLF grantees will finish next summer. In total, 18 organisations took part in ACE’s three-year programme, while the HLF, which chose to run the programme over four years, invested in 31 applicants.

Mixed bag

So how have these schemes been faring – and what comes next for endowments? According to a final evaluation of Catalyst published a year ago by ACE, and the HLF’s most recent review of its scheme, which was released in August, success for participating organisations has been mixed.

By the end of the arts council scheme, only half of the organisations that took part achieved their target, although most managed to unlock at least a proportion of match funding. Grantees managed to raise about £30m between them, earning £19m in match funding – an impressive figure but one that fell £11m short of its target. The ACE report, which describes the scheme as a “policy experiment”, puts this shortfall mainly down to a difficult fundraising climate, and adds that the figure was skewed because London’s Serpentine Gallery failed to raise or claim any funds under the scheme. The gallery ran into a problem reported by several participants – the endowment was taking much-needed resources away from fundraising for more immediate income, which in the case of the Serpentine was necessary to complete the £14.5m Sackler Gallery.

One culture professional suggested that the shorter timescale for the ACE scheme meant organisations might not have had time to develop the resources and systems needed to manage such a significant fundraising project. Others ran into problems explaining the “what and why” of endowments – their relatively small annual yields and much more long-term impact – to donors and staff.

In spite of these challenges, the arts council report also points to significant benefits. Most organisations achieved an uplift in their fundraising as a whole, thanks to improved skills and strategies, better relationships with donors, and more engagement in fundraising by staff and, particularly, trustees. Meanwhile, income from the endowments has funded a diverse range of activities, such as public commissions, events and a residency programme at the Turner Contemporary in Margate.

In the case of the HLF, the final impact of the Catalyst Endowments scheme is yet to be evaluated, but its most recent annual report hints at similar outcomes. By February this year, only 44% of participants were on track to hit their fundraising targets, and £10.6m of the £36m match funding available had been drawn down. However, those figures were calculated before the June 2016 deadline for first-round grantees and do not reflect the momentum built up by fundraising campaigns in the final months, says Anne Young, the HLF’s head of strategic planning.

“The final figure [of those who reached their targets] is significantly higher,” she adds. Full details won’t be released until all grantees have completed the programme, but evidence suggests that the impending deadline gave a significant boost to many campaigns. “There tends to be a big push at the start, a fallow period in the middle, and then people get incentivised again towards the end,” Young says.

Organisational problems

One concern was that endowments, which typically rely on large sums from high-net-worth donors, would face difficulties outside wealthy areas such as London. But Young says the HLF did not see “any particular patterns attributable to geography”. She says the challenges were more organisational and strategic, with high staff turnover and “unsustainable competition for fundraising resources” playing a bigger part in failure to hit targets.

The scheme has revealed some interesting insights into the typical donor profile for endowments. Although in the HLF’s review, trusts and foundations were the biggest overall contributor of donations, in practice Young says many organisations found it easier to persuade individuals to give. Trusts and foundations proved reluctant to donate to a project that did not have a more immediate impact, she adds, while corporate donors also shied away because they expected more reciprocal benefits than an endowment can offer.

An element that proved particularly effective to the scheme’s success was the match funding on offer, according to Young. Some organisations, such as the Bowes Museum (see below), found individuals who were willing to double every donation, leading to a snowball effect as donors realised their money would be going that much further. The scheme enabled other organisations to experiment with new fundraising techniques such as online crowdfunding, or wealth screening members to achieve a more targeted approach.

As for what comes next, the learning from the ACE and HLF schemes has informed new programmes focused on extending fundraising capacity to a wider range of organisations – but there will be a much smaller pot of money available. ACE, which awarded £17.5m via its Catalyst: Evolve programme in July, appears to have moved away from having a specific focus on endowments, but the HLF continues to build on its work in this area. In August, it launched a £10m Heritage Endowments scheme, and is in the process of selecting the final range of applicants. Open to organisations that are already funded by the HLF, the scheme has set a more achievable minimum fundraising target of £250,000, meaning successful grantees will have an endowment worth at least £500,000 by the time they finish. “It’s not going to generate a massive return, but it’s about getting people off the starting block,” says Young.

Growing interest

The scheme will also set aside money for fundraising campaigns to address the problems that organisations faced in diverting resources, and more help will be available to organisations with little previous fundraising experience.

Across the culture sector, interest in endowments is certainly growing, with many organisations opting to set up endowment funds off their own back.

Public funding is still key, however, and Jeremy Hunt’s dream of a US-style culture sector funded by philanthropy is a long way off. But he’s probably closer to achieving that goal than he is to winning around the medical profession.
We started slowly, but we now generate £70,000 a year in interest
As well as raising £1m, we also wanted to embed a culture of individual giving. We hoped the scheme would, literally, work as a catalyst to spark that off.

We needed the first couple of years to learn how to manage donations. It took us a long time to get robust systems in place, for customer relationship management, for example. It was a big administrative task.

Three-and-a-half years in we had only got to £400,000, but momentum built towards the end.

We secured an individual who said he would double all donations that came in, then the Friends of Bowes Museum said they would double his donations. It was triple match funding. We could say to people: “The £10 you donate will bring in £100.” It helped for people to know their money was going a lot further – there was a domino effect.

Endowments can be a difficult motivator for people. It’s not like fundraising to buy a painting, where you can see an immediate result. The impact is felt beyond our lifetime. We had to emphasise that it’s something that will last forever.

Our Friends were very helpful. They got behind our campaign, putting updates on how we were doing in every quarterly newsletter. We made sure we asked everybody to donate – front-of-house staff talked to visitors when they arrived, and we had a wall at the front of the museum showing the amount we had raised. All the way through, we involved our trustees and used their networks, constantly asking them for new contacts.

People continue to donate to the endowment. It is generating about £70,000 a year in interest – so far, we’ve used this money to conserve a pair of boots worn by Napoleon. In future, it will go towards conservation, collections care, educational work, exhibitions and curatorial research. We’ve achieved other things too – there’s a large group of individual givers who are really warm to us.

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