How foundations and donor-advised funds shape the flow of charitable capital
Charitable dollars rarely travel directly from donor to operating organization. Most pass through at least one intermediary vehicle — a foundation, a donor-advised fund, a fiscal sponsor, or a community fund. Each intermediary adds friction, delay, and its own institutional incentives.
The tax deduction is claimed at the first arrow — when the donor transfers money to the intermediary. But the charitable impact doesn't happen until the last arrow — when the operating organization deploys the money. The growing gap between these two moments is the structural problem this analysis examines.
The Tax Reform Act of 1969 established a minimum 5% payout requirement for private foundations. The idea was simple: foundations shouldn't be allowed to sit on tax-advantaged assets indefinitely without deploying them for charitable purposes.
In practice the sector is a genuine mix. Aggregate grantmaking runs ~$117B a year on ~$1.8T of assets — about 6.5%. Behind that average: a few foundations spend far above the floor (Bloomberg ~12%, Gates ~11% counting its direct programs), a large cluster sits within a point of 5%, and a tail — including some of the very largest — sits below it. What's nearly universal isn't the rate; it's that investment returns (8-12% in good years) outrun payout, so endowments grow even after all grantmaking.
Foundation by foundation, the spread is wide — from Novo Nordisk at ~1% to Bloomberg above 12%. And grants aren't the whole picture: operating-heavy foundations like Rockefeller run large in-house programs that count toward the IRS test but never appear as grants. The snapshot below stacks both layers — grants (solid) plus operations, direct programs and PRIs (shaded):
How each foundation got there, year by year:
The argument for low payout rates is perpetuity: foundations are designed to exist forever, so they need to preserve capital in real terms. But perpetuity is a choice, not a necessity. Some of the most impactful foundations in history — the Rosenwald Fund, Atlantic Philanthropies, the Aaron Diamond Foundation — spent down their endowments entirely and arguably achieved more per dollar by concentrating their giving in time. And the choice is being made again at the very top of the sector: the Gates Foundation will spend ~$200B and close by 2045, Good Ventures has long planned to spend down in its founders' lifetimes, and MacKenzie Scott is giving her fortune away as fast as she can move it. The Overview's “new playbooks” are, in structural terms, a revolt against the 5% drip.
Donor-advised funds are the fastest-growing charitable vehicle in the United States, and the most controversial. They combine the immediate tax benefits of a charitable gift with the ongoing control of a private foundation — but without the foundation's 5% payout requirement, excise taxes, or public disclosure obligations.
The aggregate payout rate for DAFs has hovered around 20-25%, which looks healthy. But aggregate figures mask enormous variation. Some donors use DAFs as short-term holding accounts, granting everything within a year or two. Others use them as de facto endowments, letting assets accumulate for decades.
Unlike foundations, DAFs have no legal requirement to ever distribute their funds. A donor can claim a full tax deduction upon contribution, then leave the money invested indefinitely. The sponsoring organization (Fidelity Charitable, Schwab Charitable, etc.) earns management fees on the assets regardless of whether they're ever granted out.
How much charitable capital is effectively "parked" in intermediaries? We can estimate this by looking at the gap between what intermediaries hold and what they distribute annually.
Foundations hold roughly $1.8 trillion (2025) and distribute ~$117 billion a year (~6.5%) — while their endowments earn returns that typically outrun that rate, so the corpus keeps growing. Every additional point of payout would move ~$18 billion more per year.
DAFs hold roughly $330 billion (2024) and granted about $65 billion that year. The aggregate payout rate looks reasonable (~25%), but the asset base keeps growing — 2024 contributions ($90B) outran grants by $25 billion. If contributions were capped at the prior year's grants — preventing net accumulation — roughly $50-80 billion in additional capital would have flowed to operating organizations over the past decade.
The counterargument is that this capital isn't idle — it's being invested, generating returns, and will eventually be distributed. But "eventually" is doing a lot of work in that sentence. Discounted to present value, a dollar granted ten years from now is worth substantially less than a dollar granted today — especially if the charitable problem it's meant to address (disease, poverty, climate change) is growing or compounding in the interim.
The intermediary accumulation problem isn't caused by bad actors. It's the predictable result of structural incentives:
For donors: The tax deduction is immediate upon contribution, regardless of when (or whether) the money is deployed. There's no tax cost to delay, and significant social and psychological benefits to maintaining a large philanthropic portfolio.
For foundation boards: Perpetuity is the default expectation. Spending down requires an affirmative decision to end the institution. Staff jobs depend on the foundation continuing to exist. Investment performance is measured; grantmaking effectiveness usually isn't.
For DAF sponsors: Revenue comes from management fees on assets under management. More assets = more revenue. There's no business incentive to encourage faster grantmaking, and the competitive dynamics push sponsors toward more accommodating terms, not stricter payout expectations.
None of these actors is behaving irrationally. They're each responding to incentives that happen to align toward accumulation rather than deployment. Changing the outcome requires changing the incentive structure — through regulation, disclosure requirements, or new norms.
All of this machinery is about to be stress-tested at a new scale. The $280B+ of AI-wealth philanthropy now forming — the OpenAI Foundation, Anthropic founders' pledges, employee DAFs — will flow almost entirely through private foundations and donor-advised funds: the exact structures described on this page. The early returns look familiar: the OpenAI Foundation controls ~$130B+ of equity and has granted only tens of millions so far.
Whether the new money behaves like MacKenzie Scott — fast, unrestricted, spending down — or settles into the 5% drip is one of the biggest open questions in the Forecast. At these asset levels, the difference between those two playbooks is tens of billions of dollars a year reaching (or not reaching) operating organizations.
The Effectiveness framework maps where deployed dollars land. Or model how fast a foundation could spend down instead.