Alternative Investment Strategies

Alternative Investment Strategies

Alternative Investment Strategies

Are there complementary sources of investment capital that you can access to empower your enterprise, fund, project, or production?

Uncovering 
Buried Treasure

Fundraising for traditional enterprises is trying under the best of circumstances. The degree of difficulty for social and environmental impact ventures seeking investment during challenging times is far more arduous. Nonetheless, there are innovative, albeit less traveled, paths to investment that may be well suited for impact enterprises, funds, projects, and entertainment productions.

Innovative Paths to Investment

These sources of capital fall on a spectrum from commonplace (though hard to access) to unorthodox and virtually never utilized. We explore a few options below, including:

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Donor-Advised Funds

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Fiscal Sponsor Programs

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Banks (under the Community Reinvestment Act)

Donor-Advised Funds

For those not already familiar, donor-advised funds (“DAFs”) are philanthropic and social impact investment tools that allow donors (individuals, families, corporations, etc.) to fund special accounts through DAF “sponsor” organizations. Donors receive immediate U.S. income tax deductions and maintain allocation privileges over the fund’s distribution.

While adoption of DAFs started slowly, capital is aggregating quickly, and DAFs have become a leading tool for donation and investment in the social and environmental impact sectors. According to the 2020 Donor-Advised Fund Report of the National Philanthropic Trust, assets in DAFs now total over $141 billion, with over $38 billion in new DAF contributions in 2019 alone.

DAF Graph Horizontal - Total Assets in DAFs

Total Assets in Donor-Advised Funds ($B)

Total Assets in Donor-Advised Funds ($B)

Total Assets in Donor-Advised Funds ($B)

2019

141.94
0

2018

122.18
0

2017

112.16
0

2016

86.45
0

2015

77.24
0
DAF Graph Horizontal - Total Value Contributions

Total Value of Contributions to Donor-Advised Funds ($B)

Total Value of Contributions to Donor-Advised Funds ($B)

Total Value of Contributions to Donor-Advised Funds ($B)

2019

38.81
0

2018

36.10
0

2017

30.84
0

2016

25.10
0

2015

21.48
0

Notably, there are now over 873,000 individual DAFs across the U.S., which is a 19% increase from 2018 to 2019. Contributions to DAFs have also continued to increase as a percent of total individual giving over the last decade.

Contributions to Donor-Advised Funds Expressed as % of Total Individual Giving
*Source: 2020 Donor-Advised Fund Report, National Philanthropic Trust
DAF Graph Horizontal - Total # DAFs

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

2019

873,228
0

2018

731,607
0

2017

429,514
0

2016

289,787
0

2015

272,781
0

Donated Funds as Investment Capital

While DAFs have typically been used for charitable donations and philanthropic grant-making, astute donors recognize that by directly investing DAF capital in for-profit companies, funds, projects, or productions, DAFs can become extraordinary vehicles for achieving meaningful social and environmental impact while also generating attractive returns. In fact, if managed correctly, DAFs can become impact investing venture capital funds for donors, serving as either their first steps into the impact investing world or enhancing the work they are already doing with their traditional portfolios. 

DAFs are an ideal impact investment tool because they are completely risk-free – the funds have already been donated so no financial returns to the donor are expected – but investments from a DAF that generate real financial returns can flow back into the DAF so that (like with a traditional investment portfolio) that capital is available for the donor to direct towards the next socially or environmentally impactful venture.

Unfortunately, most DAF operators do not currently allow their donors to use their DAFs as (for-profit) impact investing mechanisms, and those that do often offer only a limited selection of investment options for donors. However, some DAF sponsors are showing greater flexibility, and DAFs can be easily transferred to other sponsors that better support donors’ impact investing goals. At LOHAS we work with our clients to position their investment opportunities optimally for the engagement of donors and the receipt of DAF funds.

Fiscal Sponsor Programs

A potentially powerful tool for social or environmental impact funds (or social impact entertainment productions/slates), fiscal sponsor programs can allow fund managers to take in investment from tax-attractive donations from a variety of contributors, attracting more capital while delivering meaningful financial advantages to supporters.

Although both DAF’s and fiscal sponsor programs can be used to invest donated capital, DAF’s are better suited for individual (or corporate) donors that want to advise on the distribution of all funds in their DAF; however, for those parties that would like to establish ongoing support for an impactful fund or cause (and defer investment decisions to others) a fiscal sponsor program may be a better fit. This distinction makes fiscal sponsor programs ideal for impact fund managers who are already guiding the investment of funds, and a fiscal sponsor program offers more flexibility to funds regarding who can contribute and into what capital is invested as well as greater tax deduction benefits to donors/investors.

LOHAS Fiscal Sponsor Program

With the right program manager, a fiscal sponsor structure can be activated immediately and be attractive to both parties that have already invested in a fund (and are seeking a way to support the cause further while garnering tax deductions) as well as parties that have not invested but see this as a way to contribute and obtain tax offsets without tapping into their portfolios. In a similar vein, a fiscal sponsor offering may also be a good fit for corporations and foundations that voice their support for the fund’s mission but are challenged due to their internal structures to make “investments” in the fund.

The services of a fiscal sponsor program manager should extend beyond back-office activities to front-office support with messaging and proactive outreach to groups that may be most aligned with the fund or its cause. To learn more about LOHAS’ fiscal sponsor program for impact fund managers, download this informative brochure; or if you think a fiscal sponsor program may be a good fit for your fund, contact LOHAS today for immediate activation.

Banks and the
Community Reinvestment Act

Perhaps the least utilized strategy within the world of impact investing, the Community Reinvestment Act (“CRA”) can be a tool for select social impact ventures to seek investment from banks. Among the many regulatory requirements for banks in the U.S., CRA obligations ensure that banks participate positively in their communities, including lending to underserved populations or businesses in the areas that the bank serves. Not meeting CRA benchmarks can lead regulators to impede certain bank activities (like acquisitions).

Innovative Offering for Banks

While CRA requirements are typically met through traditional loans, social impact venture or private equity funds that invest in solving similar societal challenges can become “CRA certified” which opens the door (through a specialized third-party structure) to accepting investment directly from banks that can come either in the form of loans or direct equity investment and which both satisfy the bank’s CRA obligations (while positioning the bank to make attractive investment returns).

Most banks are unaware of these types of innovative solutions to their CRA requirements, but LOHAS works with its client ventures to develop and structure these types of offerings and support the ensuing discussions and deal arrangements with target banks.

How LOHAS Helps

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Identification of sources of alternative investment

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Repositioning of investment to be acceptable to new investors

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Strategies to appeal to identified investors and donors

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Outreach to engage targeted investors and donors

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Ongoing management of requirements of impact investors

New Avenues to Investment

At LOHAS we help our clients think outside the traditional investment box to explore alternative fundraising strategies that complement current activities and serve as sources of capital to empower impact enterprises, funds, projects, and productions.

The data is irrefutable that impact investing is not merely a “trend” but rather an irreversible change in perspectives that is encompassing investors of every age, gender, and nationality. LOHAS helps its clients tap into this growing investor desire to support people and planet when seeking profit.

From strategic direction to optimal messaging and positioning to deal preparation to campaign development to market building and (if needed) to fundraising, LOHAS helps guide its impact clients along their paths to success.

LOHAS works with a variety of clients on activities most relevant to them, customizing each engagement to meet their needs; but we also focus heavily on key areas and strategies that reflect our team’s expertise and more effectively enable our clients’ aspirations.

There a growing variety of parties delivering both profit and impact – from companies to funds to projects and productions – and LOHAS works with each to support their specific needs, developing customized campaign strategies and providing hands-on implementation.

Whether keynoting or moderating family office, impact investing, or social impact entertainment conferences, contributing to leading publications, or delivering or participating in webinars or podcasts or providing interviews on key industry topics, the LOHAS team helps drive public discourse on investment delivering both profit and impact.

LOHAS’ deep industry knowledge and relationships expand investment options and help build supportive partner relationships that increase the efficacy and benefits of your venture to investors.