Community foundations: Donor-advised fund grants outpaced contributions in 2022
![David Rosado and team at Council on Foundations' Leading Locally event.](https://blog.candid.org/wp-content/uploads/2024/04/David-Rosado-at-Leading-Locally-event_Council-on-Foundations-768x386.jpg)
In my last article, I examined some of the key findings from the latest CF Insights survey, conducted annually by the Council on Foundations to track trends in community foundation activity and growth. The data—looking at fiscal year 2022—showed that, although community foundation assets and fundraising revenues were both down from the previous year, grantmaking was up, demonstrating the resilience of community foundation giving. When we dig a bit deeper into the data, it becomes clear that a significant portion of that activity was driven by donor-advised funds (DAFs) hosted by community foundations. DAFs are increasingly popular philanthropic vehicles that have maintained consistently high levels of grantmaking, even during economic downturns. In 2022, when both contributions to the funds and their investment returns declined, DAF account holders continued to recommend grants. As a result, total dollars distributed through DAF grants increased significantly over the previous year, outpacing contributions for the first time since we started reporting this data in 2012.
DAFs are a significant part of the community foundation portfolio
DAFs are popular in no small part because they offer individuals of varying means an accessible way to engage in philanthropy. Donors establish their own funds at a sponsoring organization (such as a community foundation) and can recommend grants from those funds at any time. DAFs present a lower barrier to entry for donors who can then activate their funds to mobilize disaster relief aid, complement a community foundation’s discretionary grantmaking, or fill existing funding gaps.
Endowed DAFs are set up as permanent funds with a principal balance that remains in place; grants are made from the income generated by the invested assets, subject to a spending policy. By contrast, non-endowed DAFs allow the donor to grant out the entire fund at any time.
Although the first DAF was established nearly a century ago, their exponential growth began in the 1990s, when large financial institutions such as Fidelity and Vanguard began establishing DAF programs, with community foundations following suit to add more of these funds to their portfolios.
CF Insights survey data shows that in 2022, DAFs comprised a significant portion of community foundations’ assets, especially among larger organizations. DAFs represented 32% of all assets held by the more than 220 community foundations in the 2022 survey — $38 billion in over 50,000 accounts. Among community foundations with assets between $250 million and $500 million, DAFs accounted for a mean average of 29% of those assets. Among those with asset sizes over $500 million, DAFs represented, on average, 36% of total assets. The fact that a significant proportion of assets are held in DAFs helps explain the decline in overall assets discussed in my previous article: DAF assets were down from the 2021 total of $41 billion, due to investment losses among endowed DAFs and lower overall contributions to DAFs.
DAFs maintain high levels of grantmaking, despite declines in contributions
In 2022, donors contributed $9.2 billion to community foundation-held DAFs in our sample, down 17% from over $11 billion in 2021. Despite this drop in new contributions, grantmaking from DAFs increased by 33% to $9.4 billion, representing nearly two-thirds of all grant dollars awarded. For the first time since at least 2012, the earliest year for which these figures were collected through the CF Insights survey, participating community foundations told us that their DAFs collectively gave out more in grants than they brought in as contributions.
Even as multiple factors contributed to asset declines, and despite there being no legal payout requirements applied to DAFs, donors continued to actively recommend grants from their DAFs in 2022. Moreover, nearly three-quarters of survey respondents reported having a policy to prevent accounts from becoming “dormant,” defined as not making a grant within a predefined period. Policy or not, virtually all participating community foundations said they take some action to ensure that all DAF holders activate their funds within five years of their last activity. Nearly all (99%) respondents said they reach out to DAF holders to encourage them to keep their accounts active. Ten percent said that if the account remains inactive, they transfer the balance to the community foundation’s unrestricted fund to allocate as the foundation sees fit. Another 50% told us that they either take this same action or distribute the funds in close alignment with the donor’s original stated intent. While some DAF holders prefer to allow their fund to grow over time with the intent to give larger, more impactful grants further in the future, for the most part, community foundations DAFs are expected to maintain some level of regular grant activity.
I discussed these findings and more with two leaders from the Park County Community Foundation in Montana during a webinar we recorded earlier this year. Visit the Council’s website to learn more about the CF Insights Annual Survey and help build a broader and deeper understanding of the important role community foundations play within the sector, including through DAFs.
Photo credit: Council on Foundations