Unlocking DAFs for Impact-First Investing

In 2019, with support from The Rockefeller Foundation, Social Finance conducted extensive market research on unlocking donor-advised fund (DAF) capital to achieve social impact. The research sought to understand the demand for impact-first investing among DAF sponsors and their donors, and the market size of impact-first investment opportunities to meet that demand.

To assess demand, Social Finance interviewed more than 20 DAF sponsors and surveyed 270 DAF donors at community foundations, national charities, and single-issue charities across 40 states. On the pipeline side, we conducted interviews and workshops with impact investors (e.g., private foundations, funds) and impact investment recipients.

Goals

• Assess demand for impact-first investments: Gain insight into DAF sponsor and donor psychology as it relates to the current management of DAF accounts and assess demand for impact-first investments via DAFs.
• Investigate the pipeline of impact-first investments: Size the impact-first-investing market and determine whether adequate impact-first-investment deal flow exists to satisfy demand for these investments.
• Identify barriers to adoption of impact-first investing: Understand the constraints that DAF sponsors and donors face in mobilizing more of the $230 billion in DAFs toward impact-first investments.

The Work

• Our engagement with practitioners confirmed there is significant DAF donor interest in impact-first investing. In our survey of DAF donors, 72% of donors indicated interest in making impact-first investments through their DAFs. Those donors indicated they would allocate ~26% of total DAF assets to impact-first investments, including net new contributions to their DAFs, representing a potential 5% growth in AUM for sponsors. In addition, interest for impact-first investments was relatively consistent across account sizes, with the largest and smallest accounts indicating the greatest interest. Moreover, interested donors indicated that they were comfortable with concessionary returns (e.g., partial recovery of principal or below-market returns) and less liquid investments.
• Our market analysis found that the pipeline for impact-first investments is robust and diverse. Through a market sizing informed by the 2019 Annual Impact Investor Survey, conducted by GIIN and a review of Form 990s of 15+ of the largest foundations, Social Finance estimated the annual pipeline of global impact-first investments to be approximately $24 billion. In addition, we held workshops with leaders from foundations, financial institutions, and impact investing organizations which informed that the pipeline of impact-first investments is robust and diverse—spanning multiple geographies, issue areas, and spectrums of risk and financial return.

Insights

• Donor-Advised Funds and Impact Investing: A Practitioner’s View, The Foundation Review
• To Support an Equitable Recovery, Donor-Advised Funds Should Look Beyond Grantmaking, Inside Philanthropy
• Increasing Your Impact by Blurring the Lines Between Investing and Philanthropy