Report: How donor advised funds can align giving and investing
MaRS’ SVX platform and Tides Canada have released a joint report on a new financial instrument in the philanthropic sector—the impact donor advised fund.
Donor advised funds are used by donors to facilitate targeted grantmaking without starting a private foundation. Most of these assets are invested primarily to achieve a return that can support ongoing grantmaking, and are often managed in a way that’s relatively agnostic about creating a positive social or environmental impact with the investment itself. In the case of an impact DAF, a foundation or DAF manager actively places the donated assets into one or a set of investments that also meets a pre-established impact criteria. There are a number of leading foundations and organizations that are directing their DAF capital towards impact investments, from investing in affordable housing and community loan funds to investing in local, sustainable food enterprises.
There is a diversity of strategies for impact investing with DAFs. From customized strategies for every donor, including choice of sector as well as investment product, to a single pool heavily weighted in public securities for all donors, intermediaries, and foundations have different strategies to target different kinds of donors and meet their organisational objectives.
There is a significant amount of impact investing activity through DAFs. There is clear leadership in impact DAFs from a number of foundations and organizations in Canada and the United States. Over $475 million in DAF assets were dedicated towards impact investments in the case studies for this report alone: a testament to the current uptake of this new approach, and the potential it holds as a key instrument in the future of doing good.
Although active and successful, impact DAFs require specialized skills to manage. The costs and expertise for appropriate due diligence on impact investments can be prohibitive for some charitable foundations. Specialized intermediaries and firms who can provide solutions including connecting impact capital with pre-screened deal flow can be helpful to DAFs interested in impact investing. Alternatively, an organization will need in-house expertise, time, and resources to create and administer an impact DAF.