Five ways to boost the flow of Donor Advised Fund capital to impact investments

By Nicholas Salter

This piece was originally published in ImpactAlpha on November 5, 2018.

There continues to be growing interest in better connecting Donor Advised Funds (DAFs) with deep, impact investing opportunities. While we have some promising examples, few are talking about the changes that could really build this market. More shared data, more donor awareness, and practical tweaks to way DAFs engage with their donors could all boost the flow of DAF capital to impact investments.

The intersection of DAFs and impact investing is a hot topic. In April I wrote in Inside Philanthropy about this opportunity, and in recent weeks the topic was profiled in Barron’s, the Stanford Social Innovation Review, and in an article authored by Ron Cordes and Liesel Pritzker Simmons, two leading impact investors.

Donor Advised Funds act as personal charitable accounts, and they are becoming increasingly popular for donors. DAFs allow individuals to contribute assets (cash, appreciated securities, even bitcoin) to their DAF account, receiving an upfront charitable tax deduction, and then, over time, donors make recommendations to the fund sponsor about which charitable organizations they would like their resources to support. Today there are more than $85 billion in DAF assets.

As we await the latest tallies for 2018, those numbers may again break records.

Some DAF sponsors, like ImpactAssets, and increasingly community foundations, are demonstrating how to help donors steer their DAF capital to impact investing opportunities. The larger commercial DAF sponsors like Fidelity Charitable, Schwab Charitable, Vanguard Charitable and National Philanthropic Trust have only dipped their toes in, and some have expressed a willingness to dive deeper. DAF sponsors have noted general concerns about the need for liquidity, low cost products, and options with wide appeal to their diverse set of donors.

Deepening the alignment between DAFs and impact investments would introduce new and effective financial tools for individual philanthropists. DAF donors could also provide a large new source of patient and/or high-risk, impact-seeking capital for impact investors.

Here are five specific ideas to build the market and boost the flow of DAF capital to impact investments:

More shared data.

Advisor education.

Donor onboarding.

A new default option.

Outcomes Portfolios.

There is a huge opportunity here. Proof points exits. Now we need pioneers in the sector to help raise standards and build a market for all DAF donors to unlock their resources for impact investments.

Nicholas Salter is the founder of Progressive Philanthropy Group. Follow along on Twitter and explore past columns on Medium.

Principal, Progressive Philanthropy Group; formerly @clintonglobal & @ClintonFDN, @1199SEIU