Catalytic Capital | October 28, 2020

How impact investors are using donor-advised funds to shift power to the people – and communities

Meg Massey
Guest Author

Meg Massey

ImpactAlpha, Oct. 28 – Impact investing, like most investing and even philanthropy, tends to vest power in the hands of those with the capital, who can dictate when and how financing flows to enterprises and nonprofits.

Now, some investors are using donor-advised funds to shift at least some power and decision-making authority to affected communities. 

Donor-advised funds are treated as a tax-deductible charitable donation to a sponsoring organization. The donor can then use capital to make grants to nonprofits or community foundations of any amount, on whatever schedule they wish. In the last few years, their popularity has soared: there are now over 728,000 individual DAFs across the U.S., with assets totaling more than $121 billion.

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In recent years, financial service providers and investment platforms have rolled out impact investment options for the capital sitting in DAFs. A rethinking of power dynamics has begun to reshape those offerings and the donor’s grantmaking strategy. 

“It’s a whole process of unpacking what it means to give up control, and what it means to trust the community,” said Kelley Buhles of RSF Social Finance, which sponsors DAFs. “Especially when philanthropy has ingrained in us to just ask ‘what’s the return on investment’?’”

RSF Social Finance’s DAF program launched in 2010 with options to consult or co-create criteria with affected communities. Earlier this month, they expanded it to include a “community-led funding” option, where grants are determined through participatory grantmaking. In this model, the donor cedes control over how the grantmaking decisions are made to a panel of community members – grassroots organizers, civic leaders, and other members of affected communities. Though still small – of the $80 million in DAF assets managed by RSF Social Finance, about $1 million is tied to participatory grantmaking – Buhles said the option was added in response to investor demand.

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“Ten years ago, I was trying to convince people that this is a thing that will work,” she said of the initial offerings. “Now, donors are coming to us because they want to do this work.”

The investment piece of the DAF structure is also attracting wannabe power-shifters, albeit slowly. At ImpactAssets, which offers customizable impact portfolios for DAF clients, clients are expressing their interest on a familiar trajectory.

“Back in 2011, we were doing one or two [custom investments] a year – it was very, very fringe within a donor-advised fund,” said Sally Boulter at ImpactAssets. “That’s kind of where things are with participatory impact investments and grantmaking: it’s still very much on the vanguard of philanthropic thinking… I think it is definitely the wave of the future but I’m not seeing a lot of it – yet.”

The first $40 million invested in the Olamina Fund, launched last year by wealth advisor Candide Group, came from the donor-advised funds of two of Candide’s clients. Olamina, which funds women and BIPOC-led financial institutions, has an advisory committee made up of people from those communities. The committee gets a vote in the investment decisions and are included in other fund management processes.

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That shift in power is the difference between the Olamina Fund and a DAF invested in a financial inclusion portfolio. While informing or consulting with communities might be part of the latter’s due diligence or investment committee process, those communities have tangible decision-making power in the Olamina Fund model. 

The Kataly Foundation’s $50 million environmental justice initiative, hosted on ImpactAssets’ DAF platform, is going all-in on community-centered design. The foundation convened nine grassroots environmental justice organizers from across the U.S. and Puerto Rico – all of whom are women of color – to determine the best way to distribute their DAF capital through both grantmaking and investments. 

“It’s not charity, it’s not paternalistic – it’s doing the right thing,” says National Black Food and Justice Alliance’s Dara Cooper, one of the nine people designing the new process.

Their model, which is still a work in progress, had an unexpected trial run thanks to COVID-19; they have disbursed $5 million in emergency pandemic response funding. Having a design team so close to the ground helped move things along quickly, according to fellow member Tania Rosario Mendez. “We focused on agility and trust, and how to use that to give out funds.”

“We know what our folks are doing,” echoed Cooper. “We don’t need them to jump through hoops to get funding.” 

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Recognition of both historical wrongs that have skewed resource distribution and the expertise and leadership within communities began well before the Black Lives Matter protests in the wake of George Floyd’s murder. Now, those headlines are underscoring the problem with top-down decisions in creating a more level playing field. That the DAF structure can seamlessly facilitate handing over the keys to the car, so to speak, means that demand is likely to increase as part of a racial and economic reckoning.

“The traditional philanthropic model is, ‘I’m a rich guy, I see a problem, I can fix that.’ Well, yeah, but now we’re seeing that the world’s problems are bigger than we are,” said Boulter. “Even people with a lot of money and a lot of power are starting to get that sense that they need to draw from a bigger circle.”


Meg Massey is a writer and strategist based in Washington DC. She is also the co-author, with Ben Wrobel, of the forthcoming book Participate: Inside the Movement to Shift Power in Philanthropy and Investing.