Funds are a relatively new way for donors to coordinate their giving to maximise their impact. This page outlines what a fund is, and why Giving What We Can generally recommends donating to funds rather than directly to individual charities.
How do funds work?
Funds allow donors to give together, as a community. Rather than each individual giving to a specific charity, donating via a fund pools their donations so that expert grantmakers and evaluators can direct those funds as cost-effectively as possible.
Using a fund is similar to using an actively managed investment fund instead of trying to pick individual stocks to invest in: in both cases, you let experts decide what to do with your money.
This analogy helps explain the structure of a charitable fund, but it likely understates its benefits. This is because:
- Investment funds regularly take a management fee (hedge funds, for example, typically take 1–4% of invested funds each year). Whereas the charitable funds we recommend don’t take any fees for their work.
- According to the efficient-market hypothesis, you should expect that any given stock costs roughly what it should given the best available information. If true, that would mean there’s not much room for experts to pick better stocks than you could (even if you picked at random!). Whereas the best charity can be at least 10 times better than a typical charity even within the same area. This means that there is substantial room for experts to make sure your donations do far more good than they otherwise would.
As we’ll see next, there are other advantages of funds — both for the donor, and the charity.
Advantages of funds
Funds make it easier to ensure that effective organisations receive the funding they need, when they need it.
Donating through an expert-led fund is often a much more effective way to support a cause than donating individually — even if you and the fund support the same organisations. This is because individual donors aren’t able to easily coordinate with each other, nor the organisations they support. Whereas if they donate together through a fund, the fund manager can:
- Learn how much funding the organisation needs.
- Provide funding when the organisation needs it.
- Monitor how that funding is used.
- Work with and incentivise organisations to be even more impactful.
As a result, donors might prefer funds because their money can often be allocated more efficiently and effectively.
But organisations also often benefit from the fund model. This is because:
- Funds can provide a consistent and reliable stream of funding for effective organisations to carry out their work, whereas relying on individual donations can often be a challenge.
- Fund managers can provide support in addition to funding. They often give advice and share key connections that can help the organisation succeed.
In general, because a fund pools the resources of multiple donors, and because a fund manager can spend more time investigating and supporting organisations than individual donors can, funds are often a highly cost-effective donation option.
When donating to funds may not be the best option
While we think most donors should give to funds, there are some cases where it might not make sense. This would be if:
- You think you can find more cost-effective donation opportunities by yourself. For example, you may have substantial expertise in a high-impact cause you want to support, or you might not be able to find a fund that aligns with your values.
- You have unique access to donation opportunities. There are often donation opportunities that funds can’t support, even if the fund managers thought they were extremely cost-effective. For example, none of the funds we recommend can directly donate to a political party, and you might think that the best donation opportunity is to fund the political campaign of someone who you think will be highly effective if elected.
- You would prefer to use a donor lottery. At least as of 2022, Giving What We Can runs a “Donor Lottery” which allows donors to enter into a lottery for a pot of money, where the winner can make recommendations for where that pot should go. Some discussion of the potential benefits of donor lotteries can be found here.
Bottom line: Should you give to a charitable fund?
For most donors, we think the answer is yes.
The point of charity is to help others, and if you want your donations to be directed to the most effective organisations, donating via a charitable fund led by expert evaluators is likely the best way to do this.