Center for Effective Philanthropy: Beyond Payout: What Is Charitable Capital Doing Right Now?

This article originally appeared on The Center for Effective Philanthropy’s website in June 2025.

Center for Effective Philanthropy President Phil Buchanan recently made a strong case for why foundations should increase their payouts. He does not think all foundations should spend down and has long argued that perpetual foundations play an important role in the charitable ecosystem. But in a moment when nonprofit need is urgent, the time to act is now, he argues.

At the same time, a recent article in The Wall Street Journal highlights the continued and rapid growth of donor-advised funds (DAFs). Even before the recent surge in DAF account openings and contributions, U.S. DAF assets had already reached more than $325 billion in 2024, growing at roughly 18% annually over the past five years. Much of that growth is driven by the tax advantages DAFs receive. In some cases, DAF holders are increasing contributions without a clear plan for when or how those dollars will be given away.

Together, these two different vantage points circle the same fundamental tension: how much capital is flowing into philanthropic vehicles, and how quickly, if at all, it is being deployed to meet urgent needs.

Beyond calling for increased payout, it is worth asking what those assets are doing in the meantime. Across DAFs, private foundations, and other charitable vehicles, most capital is invested in traditional portfolios while donors and institutions decide what to fund. One analysis found that only around 5% of foundation assets are allocated toward impact, with the other 95% invested conventionally.

That is the default sequence: invest to maximize returns, then give to do good.

But this is a false choice. Many of the challenges philanthropy is trying to address do not fit cleanly into either category. They sit in the middle, where solutions are too mission-driven for conventional finance and too capital-intensive for grants alone.

Take predatory lending in residential real estate, a hundred-billion-dollar market. Addressing it means refinancing these loans at fairer terms, which rarely meets an investor’s return expectations and far exceeds what philanthropy can cover through grants. Or consider child-care providers that need safe, stable space, but operate on margins too thin to reliably afford rent. Similar gaps exist in climate resilience, community health, and local economic development. These are not niche issues. They are structural failures in the current system and help explain why economic opportunity remains out of reach for so many Americans.

The recent program-related investment paper from the Social Finance Institute makes clear that foundations already have tools to engage here. Program-related investments are investments made to advance charitable purposes first, with the possibility of financial return. They sit between grants and traditional investments. And yet they remain rare. The paper estimates that only 0.4% of foundations made a program-related investment in 2023.

The reasons are familiar: limited staff capacity, difficulty sourcing deals, and uncertainty around risk. But the same research shows these barriers are often more manageable than many assume. About half of the surveyed foundations that recently started making program-related investments say it was easier than expected. What helped most was working with experienced partners and keeping structures simple.

The constraints are real, but they are not impossible to confront.

And this is not just about foundations. Across the system, there is well over $2 trillion in charitable capital, including more than $1.8 trillion in foundation assets and over $325 billion in donor-advised funds. Even a small shift in how a portion of that capital is used could have outsized effects, helping to build solutions that combine scale, sustainability, and mission. Impact would compound over time rather than happening once.

There are already examples of what this can look like. At Social Finance, the Tuesday Fund is one. Launched with philanthropist Mollie Carter, it invests in income generation, wealth building, and wraparound support, using a mix of debt and equity investments. The goal is to help people access the services and infrastructure that make economic mobility possible, increase their earning potential, and help them build long-term financial stability. It is about creating pathways, not one-off solutions.

Similarly, Press Forward’s work highlights the role of catalytic capital in sustaining local news. Local journalism faces both a market failure and a public good challenge. Advertising revenue has declined sharply, and while philanthropy has stepped in, grants alone are unlikely to support long-term sustainability. More flexible, risk-tolerant capital can help news organizations move toward models that are both mission-driven and financially viable.

None of this is new. Foundations like the Rockefeller Foundation, Ford Foundation, MacArthur Foundation, and Heron Foundation have used impact-oriented investment tools for decades. Community development financial institutions have long blended public, private, and philanthropic capital. More recent efforts, including the Catalytic Capital Consortium and investors such as Ceniarth, have built on that foundation.

What is new is the scale of capital now sitting in charitable vehicles, and the growing recognition that many of today’s challenges require more than grants or markets can provide on their own.

This brings the conversation back to payout, but with a broader view. Payout matters. But it is only part of the story. How capital is used while it is waiting also shapes its impact.

If charitable capital has already received a tax benefit, there is a strong case that it should be contributing to the public good now, not simply waiting to be deployed later. That does not mean replacing grants or ignoring financial discipline. It means using a broader set of tools and being more intentional about the impact capital has in the interim.

Impact investing is one way to respond to Phil’s call with even greater force, putting more charitable capital to work, sooner, in ways that match the urgency of the need.