[Note: I've written about EA Funds before, but I believe there's enough new here to merit a separate post – and it comes as lots of Brits are deciding where to donate before the UK tax year ends.]
I think EA Funds is an awesome idea – delegate the hard work of deciding where to give money to the experts. I've donated there in the past, and encouraged others to do so, and I’m glad CEA is putting time into the programme.
However, there are some issues with the way the funds are run. My concerns summarised:
- The funds hand out money very infrequently, and hold onto money for long periods of time. This erodes the value of the fund through time discounting. EA orgs have stated that they value donations in a year's time at a 12% discount to receiving them now, so this represents a substantial cost.
- The funds hold their money as cash, forgoing any potential interest the money could earn.
- There is no schedule as to when the money will be handed out. This lack of transparency is troubling, and prevents donors making informed choices (e.g. to give directly to charities instead of waiting).
- (a weaker objection) As the funds hold onto donations for so long, the chances of the fund manager's and donors’ intentions drifting apart is high.
My suggested improvements:
- Disburse funds regularly (e.g. once every three months).
- If they’re not being disbursed, hold funds in low-risk investments (e.g. government bonds), not cash.
- Be transparent about future plans and realistic about fund managers’ capacity to administer the fund.
Waiting to hand out money erodes its value – so disburse at a regular cadence
EA Funds currently holds $1.1million in cash. From the EA Funds website, here is the amount of money unallocated in each fund, followed by the percentage of the total donations that fund has received which remain unallocated (thanks to Peter Hurford for the idea):
- Global Development: $497,957 [49% of all money it has ever received]
- Long-Term Future: $348,167 [95%]
- EA Community: $206,271 [71%]
- Animal Welfare: $75,109 [18%] – though it's about to make a disbursement
EA organisations surveyed at the end of 2017 said their average discount rate on donations was 12% per year – so the funds holding onto donations instead of handing them out has a considerable cost. Whether this discount rate is accurate is another question – given the relative abundance of cash available to EA orgs (through OpenPhil and Good Ventures), a rate as high as this is surprising.
Funds are held as cash – invest them if they’re not being disbursed
I've confirmed with CEA that the money in the funds is held as cash, and not invested. If it was held in e.g. US Treasury bonds, it could be earning 1~2% per year at no risk.
Keeping the funds liquid does have benefits – namely, allowing fund managers to make disbursements at short notice – but I don’t foresee that option being exercised often. I also admit that it isn't "free" to invest the money in bond, in that there's operational overhead involved, but with such a large amount of money held it seems worthwhile.
A lack of transparency is bad – be clear about fund manager bandwidth
It seems like the irregular disbursements from the funds are down largely to fund managers not having sufficient time on their hands – and having much more pressing commitments (e.g. managing big chunks of Open Phil’s budget!).
The funds could take a similar approach to Giving What We Can – allocate funds to the top charities in their cause area, and donate to those charities on a regular basis until the fund manager comes along and updates the allocation. This would prevent funds from sitting in limbo for long periods of time, and ideally would mirror what donors would otherwise be doing with the money if EA Funds didn’t exist (i.e. in the absence of any other information, give to the top charities).
(Of course, this is moot if fund managers have a good reason to defer donating – rather than simply not having the time to manage the fund.)
Additionally, the longer the fund holds on to donations, the more likely it is for the donor's intention and the fund's direction to diverge (I wrote more about this here). You could argue that this is already happening: when I donate to a fund, I do so in the expectation that the money will be handed out reasonably rapidly.
 – "The size-weighted average discount rate [of EA orgs surveyed] for donations was 12%". https://80000hours.org/2017/11/talent-gaps-survey-2017/
 – See US Treasury bond yields https://www.bloomberg.com/markets/rates-bonds/government-bonds/us. At the time of writing, 3 month US Treasury bonds currently offer a 1.7% annualised yield.