Why Giving What We Can recommends using expert-led charitable funds

By Michael Townsend🔸, Sjir Hoeijmakers🔸 @ 2022-11-28T22:43 (+70)

This is a linkpost to https://www.givingwhatwecan.org/why-we-recommend-funds

Giving What We Can is looking to build more of an 'institutional view' on various aspects of effective giving. Something we've recently decided to more explicitly push for is donating via a fund. I'm cross-posting our page outlining why we recommend funds with hopes of getting feedback and questions from forum users :).

Funds are a relatively new way for donors to coordinate their giving to maximise their impact. This page outlines what a fund is, and why Giving What We Can generally recommends donating to funds rather than directly to individual charities.

How do funds work?

Funds allow donors to give together, as a community. Rather than each individual giving to a specific charity, donating via a fund pools their donations so that expert grantmakers and evaluators can direct those funds as cost-effectively as possible.

Using a fund is similar to using an actively managed investment fund instead of trying to pick individual stocks to invest in: in both cases, you let experts decide what to do with your money. This analogy helps explain the structure of a charitable fund, but it likely understates its benefits. This is because:

Investment funds regularly take a management fee (hedge funds, for example, typically take 1–4% of invested funds each year). Whereas the charitable funds we recommend don’t take any fees for their work.
According to the efficient-market hypothesis you should expect that any given stock costs roughly what it should given the best available information. If true, that would mean there’s not much room for experts to pick better stocks than you could (even if you picked at random!). Whereas the best charity can be at least 10 times better than a typical charity even within the same area. This means that there is substantial room for experts to make sure your donations do far more good than they otherwise would.

As we’ll see next, there are other advantages of funds — both for the donor, and the charity.

Advantages of funds

Funds make it easier to ensure that effective organisations receive the funding they need, when they need it.

Donating through an expert-led fund is often a much more effective way to support a cause than donating individually — even if you and the fund support the same organisations. This is because individual donors aren’t able to easily coordinate with each other, nor the organisations they support. Whereas if they donate together through a fund, the fund manager can:

Learn how much funding the organisation needs.
Provide funding when the organisation needs it.
Monitor how that funding is used.
Work with and incentivise organisations to be even more impactful.

As a result, donors might prefer funds because their money can often be allocated more efficiently and effectively.

But organisations also often benefit from the fund model. This is because:
Funds can provide a consistent and reliable stream of funding for effective organisations to carry out their work, whereas relying on individual donations can often be a challenge.
Fund managers can provide support in addition to funding. They often give advice and share key connections that can help the organisation succeed.

In general, because a fund pools the resources of multiple donors, and because a fund manager can spend more time investigating and supporting organisations than individual donors can, funds are often a highly cost-effective donation option.

When donating to funds may not be the best option

While we think most donors should give to funds, there are some cases where it might not make sense. This would be if:

You think you can find more cost-effective donation opportunities by yourself. For example, you may have substantial expertise in a high-impact cause you want to support, or you might not be able to find a fund that aligns with your values.
You have unique access to donation opportunities. There are often donation opportunities that funds can’t support, even if the fund managers thought they were extremely cost-effective. For example, none of the funds we recommend can directly donate to a political party, and you might think that the best donation opportunity is to fund the political campaign of someone who you think will be highly effective if elected.

Bottom-line: should you give to a charitable fund?

For most donors, we think the answer is yes.

The point of charity is to help others, and if you want your donations to be directed to the most effective organisations, donating via a charitable fund led by expert evaluators is likely the best way to do this.

If you'd like to give to a fund, we recently announced Giving What We Can's recommended funds (and charities) which you can find on our website.

These funds are chosen because they're ran by our trusted evaluators. We're planning on evaluating evaluators next year so that we and other organisations have a stronger basis behind these sorts of recommendations.

Paul_Christiano @ 2022-11-29T02:44 (+52)

If someone is strongly considering donating to a charitable fund, I think they should usually instead participate in a donor lottery up to say 5-10% of the annual money moved by that fund. If they win, they can spend more time deciding how to give (whether that means giving to the fund that they were considering, giving to a different fund, changing cause areas, supporting a charity directly, participating in a larger lottery, saving in a donor-advised fund, or doing something altogether different).

I'm curious how you feel about that advice. Obviously some donors won't be comfortable with the idea of a donor lottery and they can continue to give directly. I personally remain very excited about the idea of donor lotteries and think it would be healthy for the EA community to use more extensively.

For example, I think it would be healthy if funds were accountable to a smaller number of randomly selected donors who had the time to investigate more deeply, rather than spending <10% as much time and being more likely to pick based on a quick skim of fund materials and advertising/social dynamics/etc. And it seems like there's no way to escape from that regress by having GWWC evaluate evaluators, since then the donor must evaluate GWWC's evaluations. From this perspective a donor lottery is really like a "free lunch" that's hard to get in other ways.

Using a fund is similar to using an actively managed investment fund instead of trying to pick individual stocks to invest in: in both cases, you let experts decide what to do with your money. This analogy helps explain the structure of a charitable fund, but it likely understates its benefits.

There is also one major way in which it overstates the benefits: for financial investments it is very valuable to diversify across at least dozens of firms and a few asset classes. Evaluating so many investments would take a huge amount of time, and so even if evaluating individual investments was easier than evaluating funds you'd still probably want to invest in a fund. In contrast, a charitable donor needs to find just one charity that they want to support, and so the case for evaluators really rests on it being easier to evaluate an evaluator than to evaluate a charity.

That comparison is most favorable for organizations like GiveWell, whose main role is to produce reasoning that would clearly be valuable to an individual donor trying to evaluate a charity. But "evaluate funds" vs "evaluate charities" is more apples-to-apples when you are primarily relying on funder judgment, since you could just as well rely on the judgment of people who run the charities they support.

(However the point about charities preferring to engage with fewer big funders is still very relevant and suggests using either a fund or a lottery.)

Michael Townsend @ 2022-12-01T04:54 (+23)

Thanks for the thoughtful comment.

I think there’s a strong theoretical case in favour of donation lotteries — Giving What We Can just announced our 2022/2023 lottery is open!

I see the case in favour of donation lotteries as relying on some premises that are often, but not always true:

Spending more time researching a donation opportunity increases the expected value of a donation.
Spending time researching a donation opportunity is costly, and a donation lottery allows you to only need to spend this time if you win.
Therefore, all else equal, it’s more impactful (in expectation) to have a 1% chance of spending 100 hours to decide where $100,000 should go than it is to have a 100% chance spending 1 hour to decide where $1,000 to go.
And donation lotteries provide a mechanism to do the more impactful thing.

Some of these don’t hold for many donors, and there are some additional considerations which undermine the value of lotteries:

Some donors may not feel confident that they can do much better with more time invested. They may even feel averse about the amount of money they’d affect if they won(even if ex-ante they influenced $X either way). They stand less to gain from donations lotteries because of this.
Choosing to donate to a donation lottery is not costless. For example, it may take a similar amount of time/resources to evaluate which fund they think is highest impact, as it would to understand and trust donation lotteries. This takes away some of the advantage of a donor lottery.
For some donors, there’s there may be more advocacy potential in giving to a fund supported by a reputable evaluator, than a donation lottery.
- I’d like to flag that I’m a little more reticent about putting too much weight on this consideration. Leaning too much into ‘advocacy potential’ (rather than just doing what’s straightforwardly effective) seems slippery. But I think it’d be a mistake to ignore this consideration.
A substantial amount of our traffic comes from people who are completely unfamiliar with effective altruism (e.g.., people who just googled “Best charities” or just used our “How Rich Am I?” calculator) and I think funds are a better option for most of this audience (though perhaps for EA Forum users, it’s a different story, so I really appreciate pushback here!).

Overall, I think if Giving What We Can changed its default recommendation from funds to donation lotteries, we’d be having less impact.

Though we see funds as the best default option, we would like to provide additional guidance on when it makes sense to choose other options. I’ve made a small edit to the version of this post on our website to acknowledge that donor lotteries could be a compelling alternative. My sense is that donor lotteries would be a better option than funds for someone who:

Understands the arguments in favour of a donor lottery, and also the mechanisms for how it works.
Would be able to donate cost-effectively if they spent more time on their decision.
Would be able to spend that time in the event of winning.

I also have a few thoughts about this comment in particular:

For example, I think it would be healthy if funds were accountable to a smaller number of randomly selected donors who had the time to investigate more deeply, rather than spending <10% as much time and being more likely to pick based on a quick skim of fund materials and advertising/social dynamics/etc. And it seems like there's no way to escape from that regress by having GWWC evaluate evaluators, since then the donor must evaluate GWWC's evaluations. From this perspective a donor lottery is really like a "free lunch" that's hard to get in other ways.

Speaking personally, I’d also prefer fewer donors conducting deeper investigations of funds than a larger number conducting more shallow investigations. I think this is a very good consideration in favour of donation lotteries.

Speaking on behalf of Giving What We Can: though our work “evaluating the evaluators” will inform our recommended funds and charities (to provide a stronger basis for our recommendations) we are also motivated to make it easier for donors to choose which evaluators and funds they rely on by providing resources on the values implicit in their methodology + pointing to some potential strengths/weaknesses of their methodology.

Put another way, our vision for next year is to help:

Provide strong default options for donors, with a reasonable justification for those defaults. (i.e., they’re supported by a trusted evaluator who we investigated).
Provide the tools for donors to choose the best fund or charity given their values and worldview.

Sharang Phadke @ 2022-12-01T05:45 (+3)

Thanks for this great response.

Im really curious about your work to give donors the tools to choose between evaluators based on their values.

One big difference between investment funds and charitable funds is that lay people can at least evaluate funds on some basic metrics such as market returns versus a benchmark. Both for accountability and for the purpose of aligning charity fund/ evaluator chooses with values, some further tooling seems valuable.

Do you have any comments on the accountability piece?

Finally, I would add another downside of lotteries, which is that donors need to trust that most participants will have similar values to them, and the knowledge / skills to do research. This trust seems easier to grant to evaluators or funds.

Michael Townsend @ 2022-12-01T05:59 (+3)

I agree that providing accountability to evaluators is a real challenge. I don't have much more to add right now, other than we really hope our work will help!

As for your last point -- at least from a simple expected-value perspective, I'm not sure you should care too much about other lottery participant's values. The idea is that by donating to the lotter, you're not increasing the expected amount of money other participants influence. Of course, there could be other reasons to not want to participate in lotteries with people whose values you don't share.

Sharang Phadke @ 2022-12-01T06:15 (+1)

Re: value alignment, that's a great point, it looks like I fell victim to a bit of loss aversion! (I imagine I'm not alone)

John Bridge @ 2022-12-01T08:41 (+9)

One of the reasons I no longer donate to EA Funds so often is that I think their funds lack a clearly stated theory of change.

For example, with the Global Health and Development fund, I’m confused why EAF hasn’t updated at all in favour of growth-promoting systemic change like liberal market reforms. It seems like there is strong evidence that economic growth is a key driver of welfare, but the fund hasn’t explained publicly why it prefers one-shot health interventions like bednets. It may well have good reasons for this, but there is absolutely no literature explaining the fund’s position.

The LTFF has a similar problem, insofar as it largely funds researchers doing obscure AI Safety work. Nowhere does the fund openly state: “we believe one of the most effective ways to promote long term human flourishing is to support high quality academic research in the field of AI Safety, both for the purposes of sustainable field-building and in order to increase our knowledge of how to make sure increasingly advanced AI systems are safe and beneficial to humanity.” Instead, donors are basically left to infer this theory of change from the grants themselves.

I don’t think we can expect to drastically increase the take-up of funds without this sort of transparency. I’m sure the fund managers have thought about this privately, and that they have justifications for not making their thoughts public, but asking people to pour thousands of pounds/dollars a year into a black box is a very, very big ask.

alexherwix @ 2022-11-29T12:10 (+6)

I just wanted to raise a short critique that came to me while reading this section:

Investment funds regularly take a management fee (hedge funds, for example, typically take 1–4% of invested funds each year). Whereas the charitable funds we recommend don’t take any fees for their work.

While I certainly understand the point, it seems a little bit more justification for why this is a good arrangement is desirable when viewed through an economics lens. The reason that there are management fees is so that there is an economic incentive for the people running the fund to stay "alive". In economic terms, ideally, the management fee would be conditional on the profits made using an investment so as to align interests between management team and investors. However, even in cases where there is a simpler arrangement, having economic incentives in place helps to align interests as long as the management teams depends on them.

So, I guess my point is, what we are doing here in the donation space seems to be a very trust based arrangement, where we would need to justify the mechanisms that ensure that interests between management and investors remain aligned if the management team does not depend on the fund surviving. I am slightly worried about this after the whole SBF and FTX debacle. There is/was a lot of good will towards people who seem to have a lot of money and claiming they want to do good with it. How do we make sure that not all of our eggs are in one basket and potential downsides in the case of betrayal or corruption are limited?

Michael Townsend @ 2022-12-01T06:22 (+14)

I think fees make sense for investment funds because it increases their incentive to make a profit for their customers. But I don't think a straightforward fee for charitable funds would increase their incentive to have an impact (though perhaps it would increase their incentive to convince donors they are having an impact - but this is still a 'trust based arrangement').

That said, I take your point about the problems with trust based arrangements! I feel in the ideal world, charitable funds are funded proportional to the quality of their grants. To some extent, this is what already happens (often these funds are themselves funded by a different funder after conducting some kind of evaluation), but it's often not public. I'm hoping that Giving What We Can's work evaluating the evaluators will help provide additional accountability and help donors make a more informed choice about which funds to trust.

alexherwix @ 2022-12-02T07:33 (+3)

Thanks for the reply Michael.

I just wanted to note that I didn’t want to imply or recommend that the fund managers should be payed but rather that there is a reason fund managers are payed. I think this reason was somewhat neglected in the post. I think more of an argument / investigation would be helpful to understand why / find out if the current arrangement is well-thought out.

I think my main concern is that funds tend to centralize funding pretty strongly and this can have positive but also negative consequences in certain situations. Imagine a corrupt fund manager having access to / leverage over hundreds of millions of dollars.

Paul Christiano’s suggestion regarding donor lotteries may be an interesting approach in this regard because it makes the whole thing less interesting for career criminals.

Having said all that I am not overly concerned that this is a pressing issue for the community but still something that should be in the (back of the) mind of people who design such management systems.

Jeff Kaufman @ 2022-12-05T01:18 (+4)

Funds are a relatively new way for donors to coordinate their giving to maximise their impact.

I don't think the idea of a charitable fund is especially new? More: https://forum.effectivealtruism.org/posts/9Axdtzusq9wSKixEZ/historical-notes-on-charitable-funds

Zoe Williams @ 2022-12-05T21:50 (+3)

Post summary (feel free to suggest edits!):

Funds allow donors to give as a community, with expert grantmakers and evaluators directing funds as cost-effectively as possible. Advantages include that the fund can learn how much funding an organization needs, provide it when they need it, monitor how it’s used, and incentivize them to be even more impactful. It also provides a reliable source of funding and support for those organisations.

GWWC recommends most donors give to funds, with the exception of those who have unique donation opportunities that funds can’t access, or who believe they can identify more cost-effective opportunities themselves (eg. due to substantial expertise, or differing values to existing funds). You can find their recommended funds here.

(If you'd like to see more summaries of top EA and LW forum posts, check out the Weekly Summaries series.)

Andy_Schultz @ 2022-11-29T00:36 (+2)

Would any of the funds be able to deploy additional donations quickly to projects that recently lost funding? Or is this an exceptional time where it might be more effective to donate directly to impacted groups, so they can receive donations faster?