[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[1], 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[1] – 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[2].
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.
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[1] – "The size-weighted average discount rate [of EA orgs surveyed] for donations was 12%". https://80000hours.org/2017/11/talent-gaps-survey-2017/
[2] – 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.
From my observations, the biggest problem in current EA funding ecosystem is structural bottlenecks.
It seems difficult to get relatively modest funding for a promising project if you are not well connected in the network / early stage projects in general (?).
Why?
While OpenPhil has an abundance of resources, they are at the moment staff limited, unlikely to grant to subjects they don't know directly, and unlikely to grant to small projects ($10k)
EA funds seem to also be staff limited and also not capable of giving small grants.
In theory, EA Grants should fill this gap, but the program also seems staff limited (I'm familiar with one grant application where since Nov 2017 the term when the grant program will be open is pushed into future at a rate 1 month per month)
Part of the early-stage projects grant support problem is it generally means investing into people. Investing in people needs either trust or lot of resources to evaluate the people (which is in some aspects more difficult than evaluating projects which are up and running)
Trust in our setting usually comes via network links in the social network, which is quite limiting resource.
So my conclusion is, the efficient allocation is structurally limited by 1] lack of staff in grant-making organizations 2] insufficient size of the "trust network" allowing investment in promising projects based on theor founders
Individual EAs have good opportunities to get more impact from their donations than by donating to EA funds if they're overcoming the structural bottlenecks by their funding. That may mean
a] donating to projects which are under the radar of OpenPhil and EA Funds
b] using their personal knowledge of people to support early stage efforts
On trust networks: These are very powerful and effective. YCombinator, for example, say they get most of their best companies via personal recommendation, and the top VCs say that the best way to get funded by them is an introduction by someone they trust.
(Btw I got an EA Grant last year I expect in large part because CEA knew me because I successfully ran an EAGx conference. I think the above argument is strong on its own but my guess is many folks around here would like me to mention this fact.)
On things you can do with your money that are better than EA funds: personally I don’t have that much money, but with my excess I tend to do things like buy flights and give money to people I’ve made friends with who seem like they could get a lot of value from it (e.g. buy a flight to a CFAR workshop, fund them living somewhere to work on a project for 3 months, etc). This is the sort of thing only a small donor with personal connections can do, at least currently.
On EA grants:
Yes. If I were running EA grants I would continually be in contact with the community, finding out peoples project ideas, discussing it with them for 5 hours and getting to know them and how much I could trust them, and then handing out money as I saw fit. This is one of the biggest funding bottlenecks in the community. The place that seems most to have addressed them has actually been the winners of the donor lotteries, who seemed to take it seriously and use the personal information they had.
I haven’t even heard about EA grants this time around, which seems like a failure on all the obvious axes (including the one of letting grantees know that the EA community is a reliable source of funding that you can make multi-year plans around - this makes me mostly update toward EA grants being a one-off thing that I shouldn’t rely on).
That trust networks work well, and that according to your experience with the EA Grants there is an effective trust network within EA, just begs the question why trust networks within EA have failed to work for the EA Funds, since so little has been allocated from them.
FWIW, nothing I've heard about the EA Funds leads me to believe your impression is at all incorrect.