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For donor-advised funds, investible options climb with demand

There is $85 billion sitting in donor-advised funds, waiting to be put towards philanthropic causes. Increasingly, the dry powder in these DAF accounts is being channeled towards impact investments as well.

Fidelity Charitable, the nation’s largest provider of donor-advised funds, has seen the share of this capital committed to impact investing increase 110% in the past year. In the first quarter of this year, impact invested “DAF” assets stood at $856 million, Fidelity Charitable says. All told, Fidelity Charitable managed $21 billion in donor-advised fund assets from 180,000 donors,

Tax-advantaged donor-advised funds have traditionally been used for grant-making. But an increased number of DAF providers enable donors to direct mission-aligned investments from the accounts as well.

Donor-advised funds move to provide an onramp to impact for smaller investors

As demand for impact investing through DAFs grows, the spectrum of product offerings is also growing. A snapshot:

  • Private debt and equity direct funds. ImpactAssets, manages 1,000 DAF accounts with $424 million in assets. Among a variety of investments options, the nonprofit offers direct investments into impact funds targeting climate change solutions, ecoforestry, underserved small business owners, sustainable food and agriculture, the growing middle class in emerging markets and more.
  • Place-based investing, for individuals wanting to make a greater local impact or community foundations stepping into impact investing for the first time.  The Philadelphia Foundation, which manages 400 donor advised funds, made a $5 million commitment to PhilaImpact—a targeted $30 million fund serving local businesses and community projects—as its first impact investment. Benefit Chicago, a partnership between Calvert Impact Capital, the Chicago Community Trust and the MacArthur Foundation, has raised nearly $100 million for local investing, drawing heavily from donor advised funds. Smaller players like the Ann Arbor Area Community Foundation are using donor advised funds as a tool to spur local lending.
  • Returnable grants allow donors to recycle charitable contributions through multiple initiatives. Calvert Impact Capital is among the organizations that have put returnable grants to use for affordable housing, education, and healthcare programs.
  • Investment pools, including mainstream social investments like exchange traded funds and mutual funds, are the most accessible impact investment for donor advised funds, given the “passive nature of [donor advised funds] that donors don’t want to spend a lot of energy thinking about,” Calvert Impact Capital’s Beth Bafford told Inside Philanthropy. Fidelity recently added the Sustainable U.S. Index Pool, the Sustainable International Index Pool and the Environmental Impact Access Pool.

“The flexibility offered by donor-advised funds also allows for diversification, using a range of investment strategies, liquidity, time horizon and asset classes,” MicroVest’s CEO Gil Crawford and Timothy Freundlich, the President of ImpactAssets, wrote in a guest post on ImpactAlpha in March.

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