Five Forces Drive Demand for Fund Proliferation
Despite their limitations and valid criticisms, the demand for collaborative funds will continue to rise this coming decade. This summary blog and its companion pieces outline the five forces, both internal and external to the field of philanthropy, that will result in greater fund proliferation without explicit donor interventions.
1. The first trend is the growth of grantmaking capital, driven by the rapid increase in concentrated wealth among high-net-worth individuals and families and within private foundation endowments (currently sitting at $1.6T in assets.) If one looks beyond private foundations to donor-advised funds, which are grant-making entities, that number only grows. Foundations are simply not scaling their program staff at a fast enough rate relative to the growth in their endowments, according to several conversations with program officers who cited their inability to hire new staff in 2023 despite escalating challenges facing the field. The implication is that complex grant-making requirements may continue to outpace internal foundation staff capacity, and my experience is that collaborative funds are a natural mechanism for accordion grant-making capacity.
2. This is more true in an ecosystem with newer grant-making entities, whose staff are exceedingly lean relative to grant-making needs. This is the second trend – what is sometimes termed ‘lean philanthropy’ is another reason for Some of the newer technology donor-giving platforms, like Emerson Collective, Chan Zuckerberg LLC and Arnold Ventures, as examples, have lean staff relative to foundation assets. Yield Giving is perhaps the most emblematic of an extraordinary amount of grant-making with a lean and outsourced grantmaking model. A lean institutional model means that these philanthropies by necessity must outsource a great deal of subject matter expertise, investment sourcing responsibility, and grantmaking capacity to consultants and collaborative funds. In short, there is a growing mismatch between philanthropy’s growing wealth and its grantmaking capacities and infrastructure. Collaborative funds will play an increasingly important role in bridging this gap and providing outsourced capacity looking at beyond grant making capital.
3. The third trend is a much deeper commitment to, and greater risk tolerance for, investing in system-level change. Changing systems and structures of power requires looking beyond grant-making strategies, which test the limits of private foundation strategies. Since private foundations have some real constraints in funding advocacy initiatives, they will often support collaborative funds that have greater flexibility in using multiple forms of capital. As an example, the Rural Democracy Initiative is the first funding collaborative building power toward a thriving democracy and shared prosperity across diverse communities in rural areas and small cities. It does so through the 501c3 Heartland Fund Hosted at New Venture Fund. Its partner 501c4, housed at 1630 Fund, called the Rural Victory Fund supports a slate of 501c4 groups mobilizing rural and small-town voters, often in battleground states with a long view to build greater political power. There are literally dozens of these types of platform innovations and as we learn more about their scale, speed and impact, my instinct tells me there will be much greater interest in risk taking and experimentation with these joint initiatives.
4. The fourth force is what the World Economic Forum has termed “polycrises” -- the interconnected threats of climate change, war, mass migration, resource scarcity, deteriorating global cooperation, and democratic backsliding that are ushering in an era of crises that will demand philanthropic action at a new scale and level of complexity. At present, many private foundations organize their giving around singular programs or issue areas, which can prevent them from responding rapidly to these changes. Rapid response funds, which are a pool of money designated for immediate and urgent needs, typically in response to sudden crises, emergencies, or unexpected events, can evolve into more permanent structures to support those who have been harmed by these polycrises.
5. The fifth and final force we have identified is distrust. Much has been written about lack of trust in institutions, and philanthropy is not spared in that assessment. Recent US studies show that only 33% of individuals have high trust in philanthropy but 57% have high trust in operating nonprofits. Collaborative funds are often housed in public charities, and without being beholden to an individual foundation, could serve to build greater trust in the power of philanthropy. As partisan attacks fan the flames of common sentiment, the power of the collective via collaborative funds may help to rebuild trust.
Taken together, these five trends—growing and concentrated philanthropic wealth, a desire for lean philanthropy, increased donor interest in multi-capital investment strategies, the proliferation of crises, and declining public trust in philanthropy—will continue to propel donors toward collaborative funds as a solution to society’s most complex problems. Our future blog posts will examine each of these forces in turn.
