The year 2020 is extraordinary by many measures, including the value of philanthropy in difficult times. A pandemic, job losses in an associated recession and a pervasive social response to ongoing racial injustice highlight needs among large sectors of society. For investors who are planning charitable giving and striving to align their investments with their intentions, donor-advised funds (DAFs) that provide options and investment holdings transparency, may help.
While large, recognizable names in charitable support continue as important mechanisms of connecting donors to service organizations to address society’s current and ongoing needs, DAFs are cementing their place as preeminent sources of charitable contributions in the U.S. At the same time, they are giving donors an additional way to further align their investments and their intentions.
Aligning Investment With Intentions
For investors who seek to align their investments with their charitable intentions and their values, some DAFs empower them to invest in underlying strategies that target best-in-class environmental, social and governance (ESG) characteristics, sustainable strategies and broad social impact objectives. DAF investment options typically include separately managed accounts, mutual funds and exchange-traded funds.
Through sustainable investing strategies, DAF assets can work as part of an enterprise focused on sustainability and related causes even before grants are made to organizations addressing needs in society as challenges arise.
The Grant-Making Power Of DAFs
DAFs are helping low-income households and the homeless, essential workers and their families, food banks where demand is growing rapidly, and organizations focused on increasing equality and advancing progress in opportunities for repressed segments of society.
Investment News reported that donors used their DAFs sponsored by Fidelity Charitable to recommend grants of $236 million to support 9,600 nonprofit organizations that are responding to the COVID-19 outbreak. Similarly, Investment News has indicated that Schwab Charitable, another DAF sponsor, has earmarked at least $114 million in DAF grants for COVID-19 relief from the middle of February through May 5. Smaller DAFs also are experiencing a surge in giving during the pandemic. American Endowment Foundation donors have increased grants by more than 40% compared to a year ago.
Overall, grant making from DAFs to qualified charities has nearly doubled in the past five years, according to the National Philanthropic Trust (NPT), a public charity that sponsors its own DAF. In 2018, philanthropists recommended grants to charities from their DAFs totaling $23.42 billion. The same rapid growth also applies to contributions to DAFs, which totaled $37.12 billion in 2018, representing an 86% increase in contributions over the past five years, NPT reported.
DAFs Appeal To A Wide Range Of Charitable Givers
No longer the domain only of the wealthy, private charitable accounts are now available to a wide range of people through DAFs. Sponsoring organizations include community foundations, fund companies, universities and schools, charities and faith-based organizations. The NPT’s 2019 Donor Advised Fund Report estimated the average size of an individual DAF account was $166,653 in 2018. Minimums to establish a DAF can be as low as $5,000 at some sponsoring organizations.
The Chronicle of Philanthropy separates DAFs into three general categories:
• Community foundations—which conceived the concept decades ago, per The Chronicle of Philanthropy
• Commercial—sponsoring organizations such as fund companies
• Single-issue—targeting support to an organization or cause