The GiveWell Blog

More thoughts on “responsible investing”

The debate on responsible investing continues, including some thought-provoking discussion of “blended value.” People are pointing out, rightly, that being profitable vs. being beneficial to society is not an either-or. A charitable foundation can make investments that it expects to recoup partly or fully, and still think of these as part of its charitable activities (an excellent example is Jeff Skoll’s investment in An Inconvenient Truth, which I learned about from this article – Skoll invested in the movie from a combination of altruistic and profit-making motives).

So why shouldn’t a foundation think of its investment portfolio as an extension of its activities?

My answer is that for just about any foundation, it just isn’t worth it. Presumably, a foundation has a limited amount of time and resources for identifying ways to improve the world. It should spend all of these resources on identifying the best possible, highest-impact projects it can fund. Some of these projects may be “investments” in the sense that there may be an anticipated return … but once the foundation has granted all it can and wants to save the rest for later, it should just save it for later. Shifting capital between publicly traded securities would not make any reasonable list of the best ways to use one’s funds for improving the world.

But thinking about this has raised a question that seems much more important to me. Why do foundations want to save so much of their funds for later?

The law requires a foundation to give away 5% of its assets every year, and that’s what most do, even Gates. Most foundations sit around forever–witness the Rockefeller Foundation, which has existed for almost 100 years. Why? Is there a reason to save the money, earning a market return on it, rather than spend it now, and let the good it accomplishes multiply at what is probably a much higher rate (as I argued in this comment)?

One reason would be simply running out of worthy recipients. But is this really what’s going on? Why don’t foundations that have run out of projects to fund send their money to other foundations with similar goals, that haven’t? They’re all trying to accomplish the same things, right? Why doesn’t the money just flow where it’s needed, instead of sitting in the stock market?

Does this make any sense? Millions of people are dying from curable diseases and suffering from underfunded education … celebrities and charities exhort ordinary people like you and me to open our wallets today … all while 95% of your average gigantic pool of money left by a wealthy philanthropist isn’t even being used?

Wow. I’m about 10 times as stumped as I was when I started writing this post. Is this crazy or what?


  • While your point is valid, I think there is also some good into not just spending it all in one go. There is some value in institutional memory. A foundation that lasts for one-hundred years (one would hope) has some perspective on what has worked and what has not. Also, it (one would hope) has an effective bureaucracy in place—something which cannot be created overnight. In addition, some charities may incur large unpredictable expenses, which they should plan for the best they can (for example, a community pool may have the pump go out).

    A charity without any savings will probably not last very long. If there is one bad year (economically) or one other disaster which sucks away many of the charitable contributions, it will be gone. There is benefit in the better charities sticking around.

    However, there are many charities that have endowments that keep them alive past their usefulness. Without any need to raise more money, the money already given can sit and support a cause hardly worth supporting. For example, there are Churches in areas where the churches up-number the congregants.

    This is a kind of market argument: If a charity is worth keeping around, people will support it; and if not, then not.

    Given that some money should be saved, it seems foolish not to receive some rate of return on it.

  • We’re talking about foundations, not charities. Foundations generally do not solicit or receive public support, so the “market mechanism” you describe doesn’t apply.

    You raise good reasons for a charity to save money, and some of them apply to foundations as well. I’m not saying foundations should give it all away in 5 years. But how about 20? It’s considered big news that Gates is trying to give away all their money this century.

  • Please, “Run out of Worthy Recipients.” Who are you kidding, all you have to do is look at the 1,000’s if not 100,000’s of orphanages world wide that are helping children to look for “Worthy Recipients.” Who are they kidding, nobody is the answer. Just enhancing there wealth in order to keep there high paying jobs.

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