From Pilot to Practice: Building Durable Catalytic Capital Programs

Speakers

• Jordana Pleat, Managing Director, Impact First Investments, CapShift

• Lisa Barr, Senior Vice President, Partner Development, National Philanthropic Trust

• Emily Thomas, Head of Investing with Impact, Morgan Stanley

• Rob Bachmann, Director of Capital Originations, Enterprise Community Partners

Donor-advised funds hold $328 billion. Last year, they granted $64 billion. That’s a substantial amount of granting impact, but at this year's DAF Giving Summit, one question came up repeatedly: what are we doing with the rest? How do we get even more assets working for good, and what do we do with dollars that haven’t been granted to charity (yet)? For a growing number of donors and for many nonprofits, "invested and waiting to be granted" is no longer a good enough answer. They want their charitable capital working now, and they are looking to their DAF sponsors and financial advisors to show them how.

Pleat was clear that tools like recoverable grants and impact investments are not meant to replace traditional grantmaking. They expand the options available to donors who want to address funding gaps and support innovation. And across the stage, the opinion was unanimous – impact investing programs exist because donors/clients want and ask for them.

Understanding the Impact Investing Continuum

At one end of the continuum are traditional grants, which are an essential function of a DAF and do not produce a financial return. Next are recoverable grants, charitable dollars that may return to the DAF after a defined "recovery event" and can then be granted again. Further along are impact-first investments that accept below-market returns or added risk on purpose, and at the far end are market-rate traditional investments.

Bachmann pointed to Enterprise's Renter Wealth Creation Fund as an example. The fund raised $112 million, and roughly a third of that sat in a first-loss catalytic tranche. Why would any investor choose to absorb risk ahead of others? Because without that cushion, conventional investors might not have participated at all. The catalytic dollars made the rest of the capital possible.

Listening for the Cues

One of the most practical parts of the conversation focused on how financial advisors can recognize when a client might benefit from catalytic capital. Clients rarely walk in asking for a recoverable grant by name. Barr said much of NPT's advisor education centers on helping financial advisors hear the need behind what a client says.

A client might mention that a nonprofit they support has asked for a loan. Another might want to be the first gift into a capital campaign for an organization where they serve on the board. Others may simply say they wish their DAF could do more. Each of these can open a conversation about recoverable grants or impact investments.

Pleat added that other client situations create openings too. Families hoping to involve the next generation in their giving often respond well to a menu of pre-approved options, which serve as a starting point for discussion rather than a final decision. Entrepreneurs who are comfortable with venture-style risk may be eager to apply that same thinking to their philanthropy.

Size matters as well. Barr noted that a recoverable grant typically makes more sense with relatively large commitments. Many DAF sponsors will set specific minimums for participation. Below those minimums, the administrative work required of the nonprofit can outweigh the benefit, and a traditional grant may be the better choice. For clients with smaller amounts who still want to participate, pooling dollars with other donors in a collaborative fund can make catalytic giving accessible.

The Financial Advisor at the Center

At the end of the session, I asked a question about the voice I had heard the least about yet – Financial Advisors. Thomas was candid in her answer. Advisors focus on what their clients ask for. That means education is essential because she often sees cases where a client wants something, the financial institution and the DAF sponsor already offer it, but the financial advisor simply does not know it exists.

Pleat said that when she trains financial advisors on recoverable grants, she hears the same reaction again and again: they had no idea this was possible through a DAF.

And that’s the key. The most brilliant minds in the DAF ecosystem have built, and are continuing to expand and scale, solutions for deploying DAF assets not just as grants but as catalytic charitable investments. But financial advisors have the opportunity and the responsibility to listen for client cues and bring those experts and solutions to the table.