During times of prosperity, many individuals set aside money for charitable use in donor advised funds. These funds provide donors with the ability to give generously later despite uncertainty, making them a powerful philanthropic tool for responding to a crisis. The Covid-19 pandemic is one such crisis – donors at Fidelity Charitable, for example, have already granted over $2.5 billion to charities in 2020, with more than $236 million designated specifically for relief and recovery efforts.
Individuals with donor advised funds are giving generously, and we expect to see that trend continue. In addition to grantmaking, other tools exist for donors to put every dollar in their donor advised fund to work. As the crisis continues into its second month in the United States, it is important to highlight one such tool available to those with donor advised funds: impact investing.
In addition to recommending grants, individuals with donor advised funds can recommend how their fund’s capital is invested — and many investment options exist to expand the reach and impact of a donor advised fund.
When used strategically, investments are a philanthropic tool to support the people and communities responding to the crisis. This allows donors to have a larger impact with the capital in their donors advised fund.
In thinking about how to integrate impact investing into a donor advised fund and respond to the crisis, we recommend the following:
- Give — It bears repeating: No-strings-attached philanthropy is vital for Covid-19 response efforts. Grants provide the flexibility and immediacy of which people and communities are in desperate need.
- Use recoverable grants where appropriate — As their name suggests, recoverable grants are gifts that offer the potential to return principal and, in some cases, a financial return. These are an especially apt tool for supporting nonprofits that have investment funds helping to finance small businesses, or nonprofits with typically self-sustaining programs that have been disrupted or scaled up as part of responding to current community needs.
- Explore local cash or cash alternatives — Community banks and local loan funds are in better touch with the community than large national banks, and they are the first to experience a cash crunch in a crisis. Look at where short-term money would augment a community’s ability to respond.
- Support catalytic funds targeting breakthrough solutions — Longer-term capital is needed for vaccines, testing, diagnostics and novel medical devices — if successful, innovations in these areas can transform our ability to respond to Covid-19 and future health crises. Donor advised funds can play a pivotal role in providing the high-risk funding to help develop, test, and scale crucial new technologies.
The risks and timelines of each of the above avenues vary, enabling donors to develop a strategy that works best for their personal goals and timeline.
Since no directory like Charity Navigator exists for Covid-19 related investments, our research team has been dedicated to gathering and sharing actionable investment opportunities that are already approved by select donor advised fund sponsors. Here are some that are available at several donor advised funds. To learn more about these opportunities or to discuss how to use your donor advised fund in response to the Covid-19 crisis, please reach out to our team or contact your donor advised fund provider.