The Living Endowment and Fiduciary Responsibility

I was a week into my first independent school headship at Breakwater. At the time I was an inexperienced fundraiser, and my first big ask to a major donor as a new Head did not go well. I clumsily, desperately, asked a major donor for money. He said, "If you ask me for money, I will give you advice. If you ask me for advice, I will give you money." Then he stood up and walked out. The next morning, I called him and asked for advice.

His advice was transformative. He said he could give the school a million dollars, but he cautioned that would not do much for me. Either it would go toward covering operating costs, and I'd be back in a year asking for more, leaving him feeling let down or it could go into the endowment and offer a $40–50K annual draw if the market allowed, which wouldn't move the needle much either.

He offered an alternative: he could invest in a business that would generate a durable source of revenue over time. He pointed out that every $40–50K in net revenue was the equivalent of having a million dollars in the endowment. While the endowment is an important part of the financial picture, he noted, building a $10 million endowment for a small school like Breakwater would be an incredibly heavy lift. Earning $500K in net revenue through auxiliary programs, by contrast, would be both viable and faster to reach (and it was).

He told me to think of non-tuition revenue as a "living endowment" which pays an annual "draw" through earned revenue.

That was 20 years ago, and his insight changed the trajectory of the school. It was also remarkably prescient. Today, according to NBOA data, auxiliary revenue on average contributes more to independent schools' gross revenue than annual giving or endowment draw. It now trails only tuition as the most important source of earned revenue for schools — a position auxiliary revenue reached only in the past couple of years, after a long runway.

This isn't just anecdotal. SPARC, the national organization dedicated to independent school auxiliary programs, has tracked a similar trajectory in its own benchmarking data. Over the past five years, schools that have treated auxiliary programming as an intentional, professionally managed business line (not an afterthought bolted onto facilities and staff time) have seen outsized revenue growth compared to schools that run auxiliary programs passively. The distinction matters: it is not simply having a summer camp or an after-school program that moves the needle. It is operating that program with the same rigor, staffing, and strategic investment a school would apply to any other mission-critical function.

Every school is different, facing its own financial position and challenges. For many, annual fundraising remains robust and the endowment draw is healthy. On average, however, NBOA data suggests most independent schools are not in that position. There's hesitation to call the independent school business model "broken" ("challenged" is the operative word). That may be true for many schools, but for some, the model really is broken. This is happening in higher ed too. As a graduate of Hampshire College, which recently closed, I feel that acutely.

I've come to a strong conviction: if Heads and Boards are not at least exploring and discussing their school's auxiliary revenue reality and potential, they are not fulfilling their fiduciary responsibility. For those unfamiliar with the term, trustees have a "duty of care" obligation requiring them to act prudently, manage assets sensibly, and make decisions with appropriate skill and caution.

For many years, auxiliary revenue wasn't critical to a school's financial sustainability, and there was little pressure to fully utilize facilities and resources. Back then, one could reasonably argue that investing too heavily in auxiliary programs carried real risk and little reward. For the average independent school today, that argument no longer holds. Now, there is more risk in ignoring non-tuition revenue than in exploring it.

The time is now, especially for schools looking to build their "living endowment." It takes a few years to build the foundation of programs that will add durable income to a school's finances. We see many schools prudently and proactively conducting due diligence on advancing their auxiliary programs while they're still on solid footing — which is exactly the right time to do it.