LOHAS works with its clients and their investment advisors and wealth managers to identify the optimal mix of financial requirements and social or environmental values for investing that delivers both profit and impact.

LOHAS works with its clients and their investment advisors and wealth managers to understand risk/return profiles and explore alternative investment strategies, and then we source, analyze, help structure, and support impact investment transactions.

LOHAS works with a variety of clients on issues most relevant to them, customizing each engagement to meet their needs; but we also focus heavily on key areas and strategies that reflect our team’s expertise and more effectively enable our clients’ aspirations.

Investment seeking both profit and impact comes from a growing variety of sources – from individual investors to organizations to their advisors – and LOHAS works with each to support their specific needs, developing customized strategies and providing hands-on implementation.

Whether keynoting or moderating family office, impact investing, or social impact entertainment conferences, contributing to leading publications, delivering or participating in webinars or podcasts, or providing interviews on key industry topics, the LOHAS team helps drive public discourse on investment delivering both profit and impact.

LOHAS team members leverage vast operational experience and extensive industry relationships to deliver execution-ready impact investing strategies with enabling partner affiliations and hands-on support.

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LOHAS operates at the intersection of impact investing and philanthropy, enabling the investment of tax-deductible, charitable contributions and foundation grants into for-profit, private-sector socially and environmentally impactful companies, funds, projects, and entertainment productions, using donor-advised funds, fiscal sponsor programs, charitable trusts, and related structures and strategies to deliver sustainable impact. Visit LOHAS.org

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LOHAS Advisors provides social impact investment advisory services to investors and their advisors. Despite the dramatic growth in impact investing, challenges remain in identifying and engaging financially compelling, direct investment opportunities that yield real social or environmental results. LOHAS Advisors empowers individuals and organizations to generate the profitable and impactful outcomes they desire.

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LOHAS Capital is dedicated to strategic marketing and fundraising efforts for socially and environmentally impactful businesses, funds, projects, and productions. Leveraging relationships and data within the family office and social impact investor community, LOHAS Capital develops strategies and utilizes specialized technology and techniques to generate capital, awareness, and influencer support for health, sustainability, and social impact ventures. Visit LOHASCapital.com

Become an Impact Venture Capitalist using Donor-Advised Funds

September 17, 2020

Become an Impact Venture Capitalist using Donor-Advised Funds
This article was originally published on GreenMoney Journal. You can view that article here

Donor-Advised Funds (“DAFs”) are quite the hot topic in the world of philanthropy and impact investing. Seems everyone has a perspective on how DAFs could be better utilized or why they’re underleveraged. Most of the news stories (correctly) center on the topic of DAFs growing in size, but funds often remaining stuck without ever reaching the parties who need this capital the most. Many of these same articles discuss various DAF-related legislative changes that, if implemented, could change the “set it and forget it” DAF dynamic. At LOHAS Advisors, while we applaud the attention being brought to this topic, we think that one path to unleashing the power of DAFs is through impact venture capital, which closes the loop on the impact investing return spectrum as illustrated below.

Impact Investing Return Spectrum

For those unaware, DAFs are philanthropic and social impact investment tools that allow donors (which could be individuals, families, corporations, etc.) to fund special accounts through DAF “sponsor” organizations. Donors receive immediate U.S. income tax deductions and maintain allocation privileges over the funds’ ultimate distribution. According to the 2019 Donor-Advised Fund Report of the National Philanthropic Trust (NPT), assets in DAFs now total over $121 billion, with over $23 billion in new DAF contributions made in 2018 alone. Notably, there are now over 728,000 individual DAFs across the U.S., and the number of DAFs grew an astonishing 55% from 2017 to 2018.

The Challenge

So, what’s the problem? As both Will Hobson in his Washington Post article and Alan Cantor in his Chronicle of Philanthropy piece have clearly demonstrated, there’s an inherent motivation challenge in the system. Per Hobson, four of America’s ten wealthiest charities are now DAF sponsors (Fidelity, Schwab, Vanguard, and Goldman Sachs) which have converted a fundraising technique designed for community foundations into another product to offer their clients. As Cantor notes, because DAF operators can charge management fees and (for those like the four above tied to large investment houses) invest the money and assets from their DAFs, these DAF sponsors are not motivated to see the capital put to use. As tax records show, Fidelity Charitable paid its parent company Fidelity more than $46 million in 2017, to manage its over $21 billion in assets.

Furthermore, while these DAF operators claim that they pay out 20 percent of their funds to charities each year, as Hobson details, sometimes the funds are just moving capital from one DAF to another. In fact, an Economist study of three of the largest DAF sponsors found that two of the three largest recipients of their charitable spending were other DAF operators (due to account holders searching for better fee arrangements). And as Cantor notes, many DAF sponsors do little if anything to encourage their donors to distribute funds (despite suggestions to the contrary). Both Hobson and Cantor reference an interview with Fidelity Charitable President Pamela Norley in which she was asked whether she would be happy if all of Fidelity’s DAF holders decided to spend at least half of their DAFs this year thereby causing her organization’s assets to plummet from $21 billion to about $10 billion, and she tellingly responded with a “no comment.”

Our Solution

So, if the problem is that DAF sponsors want to maintain (and, ideally, grow) their funds under management and are disinclined to motivate their donors to do otherwise, how can we change that paradigm? What if DAF operators could get the public credit for dispersing funds (to legitimate causes) but also the (financial) benefit of capturing returns on investment (thereby restocking their coffers)? Might that change their reluctance to encourage their donors to distribute funds?

While DAFs have typically been used for charitable donations and philanthropic grant-making, astute donors recognize that by directly investing DAF capital in for-profit companies, funds, or projects, DAFs can become extraordinary vehicles for achieving meaningful social and environmental impact while also generating attractive returns. In fact, if managed correctly, DAFs can become impact investing venture capital funds for donors, serving as either their first steps into the impact investing world or enhancing the work they are already doing with their traditional portfolios.

DAFs are an ideal impact investment tool because they are completely risk-free – the funds have already been donated so no financial returns to the donor are expected – but investments from a DAF that generate real financial returns can flow back into the DAF so that (like with a traditional investment portfolio) that capital is available for the donor to direct towards the next socially or environmentally impactful venture. In fact, DAF venture capital holds many benefits for impact investors over other forms of investment or philanthropy, and even over traditional venture capital.

For Whom and How?

There are four main types of DAF sponsors: financial institutions (like Fidelity, Schwab, etc.), community foundations, religious and cause-based organizations, and independents – and impact investing from DAFs is a great solution for each of them. Unfortunately, most DAF operators do not currently allow their donors to use their DAFs as (for-profit) impact investing mechanisms, and those that do often offer only a limited selection of investment options for donors. However, some DAF sponsors are showing greater flexibility, and DAFs can be easily transferred to other sponsors that better support donors’ impact investing goals.

There are a variety of ways in which the capital held in DAFs can be invested to further one’s impact goals. For example, they can be ideal capital to use for early stage or higher risk investments (that may not be comfort zones for the donor’s main portfolio) or to support solutions to particular societal challenges (e.g., COVID-19). Similarly, corporate DAFs provide a simple mechanism for making strategic investments in mission-aligned companies that complement the corporation’s business model or further a stated impact goal. Notably, DAF funds can even be used to pay advisors to help transfer DAFs (when needed), analyze investment opportunities, and deploy DAF capital as effectively as possible.

For LOHAS, our focus is to serve as managers of our clients’ DAF impact venture capital funds and help convert their passions into action. We seek to close the loop between DAF donations and impact venture capital and allow the financial returns of successful investments of donated funds to replenish DAF accounts, thereby allowing donors to continue to make meaningful social and environmental impact investments while also encouraging DAF sponsors to participate actively in the true purpose of DAFs.

Learn more about becoming an impact venture capitalist using donor-advised funds.

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Alex Fang Joins LOHAS as a Partner

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LOHAS is proud to announce its newest Partner, Alex Fang. With an extensive background in socially and environmentally impactful work, Alex is passionate about aligning tax-advantaged financial structures with impact investing opportunities and is an exciting addition to the LOHAS team.

Alex Fang Joins LOHAS as a Partner

Alex Fang Joins LOHAS as a Partner

LOHAS is proud to announce its newest Partner, Alex Fang. With an extensive background in socially and environmentally impactful work, Alex is passionate about aligning tax-advantaged financial structures with impact investing opportunities and is an exciting addition to the LOHAS team.