Social Finance has long debunked the notion that holders of donor-advised funds and other tax-advantaged sources of philanthropic capital aren’t keen on impact investing. The how part, however, has taken a while to figure out.
The Boston-based nonprofit and registered investment advisory launched its Impact First Fund in 2023 to make impact-first deals more accessible to DAFs and other philanthropic donors, with a low management fee and no carry.
More than 70% of donors are interested in making impact investments through their DAFs, a Social Finance survey shows. The Impact First fund of funds currently sits on a pipeline of over 700 impact-first investment opportunities that DAFs find attractive.
Donations to the open-ended fund, in the form of recoverable grants, are starting to flow from DAFs at Boston Foundation, Fidelity and Vanguard Charitable. Through a new philanthropic partnership with UBS Optimus Foundation, Social Finance is hoping to attract more capital from DAFs for impact-first market-based solutions to complex social and environmental challenges.
The partnership enables Social Finance Impact First Fund to secure a 10% match from the foundation on recoverable grant allocations made by UBS clients, including through a UBS donor-advised fund managed by Pennsylvania-based public charity National Philanthropic Trust.
UBS and Social Finance are hoping the partnership will incentivize donors to put their capital to work for impact, and inspire the broader industry to deploy some of the trillions of dollars of charitable capital parked in foundations and DAFs. As of 2023, roughly $55 billion of the $250 billion sitting in DAFs have gone to charities, according to NPT’s latest annual Donor-Advised Fund report.
“A big piece of what we’re trying to do is to teach, and have folks learn alongside us, what it is to do impact investing,” says Social Finance’s Jessica Brooks. “If you’re trying to solve the problem of homeownership and wealth building, give people an opportunity to understand what the sector looks like, give them an opportunity to see the different players and how they’re acting, and to give them an opportunity to see their money working.”
The Social Finance Impact First Fund seeks to raise an initial $250 million in grants and investments to build a diversified portfolio of first-time and emerging private impact funds, backing solutions across good jobs creation, homeownership and clean energy access. The fund has raised $20 million, of which half has been deployed in three portfolio first-time funds and/or managers.
“We want our clients to be putting money to work and towards [things] that matter and we see this opportunity for them to maximize their philanthropic dollars,” Brooks told ImpactAlpha. “We also see the multiplier effect [through] the idea that you can take philanthropic dollars and have them create good and create good again. That’s what impact investing is.”
Charitable giving
Donor-advised funds, tax-advantaged vehicles set up by wealthy individuals or families to manage their charitable giving, have grown in popularity in recent years as a flexible charitable giving strategy. By putting capital and other assets into DAF accounts, donors can secure immediate tax deductions, even without having to allocate them immediately to charities.
Impact investors and policymakers are among those taking a closer look. A proposed bipartisan bill, called the Accelerating Charitable Efforts Act, or ACE Act, was introduced in 2021 to reform the laws that govern DAFs and encourage more timely distributions of charitable capital alongside the tax benefits (see, “ACE Act is a growth opportunity for impact investing”).
Some DAF holders haven’t exactly been fond of the extra attention. Congressional lobbying records by the Institute for Policy Studies shows Fidelity Charitable, Schwab, Vanguard Charitable and other DAF sponsors spent around $11 million between 2018 and 2023 to slow down DAF reform, including $3 million to block the ACE Act.
“Our experience has been that DAF holders are very generous in deploying their capital,” says Sarah Solomon of UBS, which sponsors DAF managers including ImpactAssets and Fidelity Charitable. “Clients view them as a sandbox to practice their philanthropy together. We have the good fortune of being in business with high-net-worth and ultra-high-net-worth individuals, and we do financial planning with them, and that parlays into investment recommendations.”
Solomon says the partnership with Social Finance adds another layer to the impact conversation with clients, especially those who are looking to align their wealth with their values.
“This is the philanthropy lens for impact and the investment landscape for impact, and how they happen concurrently, not discretely,” she told ImpactAlpha. “Once clients want this or become believers in this, they’re looking for ways to activate it and Social Finance is a great partner in doing so.”
UBS sees the matching partnership with Social Finance as a way to expand its mission to drive systemic and catalytic impact for marginalized communities, and philanthropy is critical to that mission. “The spirit of this match is to inspire many, not just some.”
Impact-first portfolio
The Social Finance Impact First Fund’s portfolio includes a $5 million investment in Blackstar Stability’s $100 million Distressed Debt Fund, which helps low-income single-family homeowners transition out of predatory mortgage contracts into more ownership-friendly mortgages.
“The Social Finance team was thoughtful and committed in their due diligence in a way that was atypical in the world of fund investing,” says Blackstar’s George Scott. “Their investment and support led us to secure commitments from other investors, helping us to reach our target fund size and maximize our impact.”
Blackstar has helped 90 families gain access to more stable, traditional mortgages, as of December 2024. One third of them identify as people of color and a quarter are Black.
The fund provided a $2.5 million senior loan to Candide Group’s Afterglow Climate Justice Fund, which is looking to raise up to $100 million to develop and expand climate solutions alongside communities most impacted by climate change. That includes low-income, Indigenous, immigrant communities and other communities of color.
With an initial $36 million committed, the Afterglow Climate Justice Fund has made five investments, including in Cambridge, Mass.-based Sunwealth, which builds, finances and operates community-scale solar projects that low energy bills and bring clean energy and green jobs to US communities, many in low-income and underserved areas.
The Candide Group also backed San Francisco-based Re-volv to provide solar financing to nonprofits helping accelerate solar adoption in underserved communities, and Solar Holler, which has facilitated over 1,800 solar installations for businesses, homes and nonprofits in Appalachian communities.
And finally, Social Finance’s Impact First Fund made a $2.5 million investment in RuralWoks Partners, which provides scalable capital to small and mid-sized rural businesses to create local jobs, reduce emissions, conserve water, improve soil and ecosystem health, and reduce waste.
Social Finance’s investment “empowers us to scale sustainable businesses that generate economic resilience and environmental benefits,” said RuralWorks’ Louisa Schibli. “Together, we’re turning capital into measurable outcomes, transforming lives, and building a more sustainable future for rural America.”
The Vermont and Minnesota-based impact fund, a joint venture between Community Investment Fund and Conduit Capital, has raised $44.5 million towards a $100 million target for growth equity and debt investments of between $1 million and $4 million in a couple dozen businesses (see “The Liist”).
RuralWorks has made four investments to date, including in EarthOptics, a soil-testing tech company helping farmers transition to regenerative agriculture practices, and Glavel, which uses recycled glass to produce lightweight, low-carbon building materials that are as durable as other conventional building materials.
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