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.

DAF Graph Horizontal - Total # DAFs

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

2019

873,228
0

2018

731,607
0

2017

429,514
0

2016

289,787
0

2015

272,781
0

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.

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.