Using the Whole Whale - A Nonprofit Podcast

Did DAFs Just Lose $38 billion? (news)

June 21, 2022

Market Volatility Has Potential To Impact DAFs & Crypto Philanthropy

Major philanthropy trends over the past several years have included the rise of crypto philanthropy and donor-advised funds, alternate forms of giving that may see the trickle-down impacts of the current bear market and overall market volatility. Donor-advised funds, or DAFs, have seen a surge in popularity over the past several years as market-tied vehicles for philanthropic giving with an estimated $160 billion according to NP Trust. While DAFs receive criticism for their sometimes conservative disbursement and lack of immediate impact, another potential flag is that they are affected by market volatility.

This will potentially impact giving because of the percent based donation targets for these funds which hover around 20% according to NP Trust. With the S&P 500 down ~20% on the year, and having its worst week since the start of 2020, contributions within the past year to these funds may have decreased in value by as much as $38B. Bitcoin, a cryptocurrency that serves as another popular vehicle of charitable giving, is worth less than ⅓ of its peak value in November of last year, potentially diminishing enthusiasm for charitable donations among investors.

The Giving Block, a major player in the crypto-donation space, offers DAF investment options that are susceptible to changes in the market landscape. This might be a rough year for overall donations from these sources, though it would be worse if this were happening in December...

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Summary:

Transcript:

[00:00:00] Today on the nonprofit news feed. We're talking about what the market drop might mean to donations. Nick, how's it going? It's going good, George, how are you? I'm doing alright today. That's good because we're about to go into a kind of complicated, but really. Uh, timebound story, really relevant story. And that is that market volatility has the potential to impact DAFs and crypto philanthropy.

[00:00:30] So two major philanthropy trends that we've been following over the past couple years on this podcast have been the increase in contributions to DAFs, which are donor advised funds, as well as the increase in crypto philanthropy. Now DS have seen a surgeon popularity and their vehicles for Phil philanthropic giving with an estimated $160 billion in value, according to nonprofit trust and DAS received some criticism for, uh, you know, maybe lackluster rates of disbursement and.

[00:01:06] Lack of immediate impact something else that is a potential downside of, uh, putting your charitable giving into the markets essentially is that the S and P 500 is down 20% over the year, just had its worst week. And that. Any kind of asset in the market is being hit right now. Uh, the flip side of that on the crypto side is that crypto is way down essentially crashed.

[00:01:35] Uh, Bitcoin is at less than a third of its value than it was at its peak in the fall. And that is likely to have, uh, put negative pressure. People who might otherwise be thinking of, uh, donating cryptocurrencies to nonprofits, which is another trend. So their overall story here is that, uh, the markets may be messing with these alternate forms of charitable giving this year.

[00:02:05] George, what are your thoughts? I'll say the larger story is around. I think DAFs, the donor advised funds, which are essentially, you know, donate now give later ish in this optimistic look of money. You'll appreciate over time because it's, you know, in the market. And just back at the napkin, we put in our newsletter that.

[00:02:27] You know, this could mean as much as 38 billion. If you're just talking about math, 20% drop 20% of 160 billion. So 38 billion could be off the table. Now bringing that downstream one more touch. There's an average number, according to the nonprofit trust of 20% given. So this sort of percentage based giving of DAFs.

[00:02:48] So what does that mean? Maybe about seven to 8 billion, just less on total giving from these DAFs. This. Which is a lot of money and looking at it, I often have gotten frustrated about donor advised funds because of this. Tax break for donations that there's no even minimum mandatory for, for giving. And so it grows or sinks in the market.

[00:03:15] Now the frustrating thing to me is that guess what, when the market drops by this much, and the economy potentially is going to be struggling and nonprofits are gonna need it most, it's the exact wrong time to be decreased, the amount of money flowing into the social impact sector. So you've sort of.

[00:03:32] Double down and tied an anchor on bad moments so that when black Swan events happen, when social, you know, social need's at its highest, you're at your riskiest, like it makes me frustrated. There's a thing that frustrates me with regard to crypto. It's a smaller market. It's less than a trillion dollars in total market cap right now.

[00:03:51] Will this impact current donations? Yes. However, it is much smaller than I think the total opportunity when we're talking about donor advised funds. It's not all doom and boom. No, here's what I'll say. It would be a lot worse if this were happening in Q4. The hope here is that there is a rally that there is a much better optimistic mood for giving when most of our donations do happen in Q4 and in December.

[00:04:18] So frankly, a summer slump. Isn't the worst thing. Although I feel for you, if you just launched your capital campaign, that's that's, that's the hot take for you, Nick.

[00:04:28] George. That's a pretty good hot take. Uh, I guess we'll see where we're at in December. I'll talk to you in Q4. I'm hoping gonna have a bull market. It's gonna be, it's gonna be great, but, uh, no, I agree with you. I, I appreciate what you said that we at um, when the market is volatile, the donations and the funds within DAF.

[00:04:53] Are at their riskiest at the moment that people need it the most. And I think we saw that in 2008, when, you know, people were relying on, uh, you know, the social impact space for help, uh, more than ever. And it was, uh, a slow recovery. So some things to keep an eye on.

[00:05:14] All right, I'll take us into our next story. And this one comes from nonprofit pro and it's about new survey ranking. The most trusted. Nonprofits. And we've talked a little bit about nonprofit trust on this show and have talked about how nonprofits are one of the most trusted social institutions uh, in our, our kind of, uh, Social fabric.

[00:05:45] But it talked about respondents who lost trust in a nonprofit. And they were asked about the ways in which their behavior changed and a result and of people who lost, uh, trust that says that 45% stopped considering giving to a nonprofit and started giving to different nonprofits. So that's kind of interesting, George, what was your takeaway from this survey?

[00:06:07] It's just very interesting to me to like quantify and rank organizations like St. Jude versus make Aish versus habitat for humanity, you know, all of which are in the top 10. And it's, uh, it's an interesting rubric that is, uh, Definitely corollary two donations to the willingness of people to say, Hey, I trust you.

[00:06:31] And I trust you with my money, right. That that's the, that's how you finish that sentence. It might be an interesting approach for your organization to maybe create these types of surveys in industries. Right. Rather than like nationally across industries. In verticals. I think there's a lot of opportunity there, uh, to do that.

[00:06:52] I know I'm giving away this idea, but we just have too many other things to pursue. So take a look at it because we can see that it is corollary to giving. And that is very important to organizations. I agree. Although my, my gripe is this kind is kind of like the Grammys it's essentially just the most popular is gonna be at the, the top of the list, you know?

[00:07:14] But yeah. Yeah. It's name brand awareness, which is why I said there's opportunity in niche, right. In, in, in vertical. Exactly exactly. You know, the, the top 67 most trusted nonprofits of the PICU U area. That's gonna crush. Come on. Oh yeah. oh yeah. I love it. All right. Uh, we gotta talk about it this weekend.

[00:07:37] This. Juneteenth. It was observed on Monday. We are recording this on Tuesday and this comes from K H O u.com and it talks about how they were honoring, uh, Al Edwards. Who was the late former state representative from Houston who worked tirelessly to make Juneteenth a state holiday Juneteenth of course, uh, the day in which the last slaves were essentially freed or in the case that the news had traveled to them, that they were in fact, uh, free and.

[00:08:16] Yeah, just kind of cool to honor this point in history and how far we've come. We actually looked it up before the podcast. It became a federal holiday last year. So this is our second year celebrating Juneteenth at, as a federal holiday. But of course has been celebrated for quite a while. Especially by folks in Texas.

[00:08:34] Yeah. It's a

[00:08:35] wonderful sort of legacy and accomplishment to have this as a, gone from a state holiday to a national holiday that is now. Definitely being observed. And just to note, you know, Edward's passed away in, in 2020. So again, a tremendous, uh, legacy to, to behold and clearly, you know, by 2020 hopefully saw that this was definitely coming in as a, as a national quality.

[00:08:58] So, uh, a good time to remember and, and great time to. Remember the American history for, for what it was as a, as a truth where it took two years, despite legislation and rules being changed, where, where people were still essentially slaved in Texas. Absolutely. All right, George, this will be our last story for the podcast, but we wanted to quickly highlight one from the New York times.

[00:09:24] That's been making the rounds on social media and it's a feature story, so it's quite long, but I think really. Reading and the title is how Houston moved 25,000 people from the streets into homes of their own. And the, the subtitle is the nation's fourth largest city. Hasn't solved homelessness, but its remarkable progress can suggest a way forward.

[00:09:46] And the overall, just as the story is really quite remarkable coalition building and uh, uh, pooling of assets and. Drive towards one goal, which is essentially a housing first model. You know, every organization has its needs, its objectives, this, that, and the other but kind of a really interesting saga of how all these different pieces, uh, came together to help folks who were homeless, get into homes.

[00:10:19] And goes through like the bureaucracy of it. It's, it's a little bit too in depth for a long, uh, a short form podcast like this, but it talks about streamlining the bureaucratic process from 76 steps to, uh, uh, and 720 days to only 32 days. It's it's really quite remarkable. So we really, uh, suggest reading it.

[00:10:41] Yeah, the TLDR is when you reduce friction, you get better results. Fewer people have to wait fewer days. It goes from, you know, a few years to a month. That's life changing. This is awesome. And something to note when you're at a nonprofit, dealing with public policies, look for the friction and look to reduce.

[00:11:02] Absolutely. All right. Any, uh, any feel good stories for us

[00:11:06] sure. George, I gotta feel good story for you. This comes from news journal, online.com and this story is about a guy named Dan friend who decided he wanted to bring 140 ton world war II tugboat from Sweden back to the land where it was built. And it kind of goes through the, the saga of how he's able to bring this, uh, piece of history home and working with the DIAND. Historic trust and a couple other organizations.

[00:11:34] And, and they got a donor for $200,000 to bring this world Wari, tug, bat tugboat back to where it was built. And I think it goes into this larger narrative about how important. History is in, in shaping our, our communities, our, our sense of identity, who we are. And honestly, just a really interesting and cool piece of history.

[00:11:55] It looks like there's a diplomatic narrative here. They, they worked with the us embassy in Sweden. Uh, so just kind of a, a, a cool story. Yeah. And also it's for a Memorial day celebration in particular. So consider with the holidays coming. How your nonprofit might be able to entice donors to bring back historical elements, celebrations, and moments that help us, uh, remember our past and support, uh, social impact today.

[00:12:22] Thanks Nick. Thanks George.

 

 

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