[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.
Hello, speaking in my capacity as the person responsible for EA Funds at CEA:
Many of the things Henry points out seem valid, and we are working on addressing these and improving the Funds in a number ways. We are building a Funds ‘dashboard’ to show balances in near real time, looking into the best ways of not holding the balances in cash, and thinking about other ways to get more value out of the platform.
We expect to publish a post with more detail on our approach in the next couple of weeks. Feel free to reach out to me personally if you wish to discuss or provide input on the process.
Awesome. Looking forward to seeing where EA Funds ends up!
If EA Funds wants an effortless "zero risk" option to hold the cash, putting all of the money in a high yield business saving account looks like the way to go. This would probably only take several hours to set up.
According to various online reviews "Community Bank of Pleasant Hill Business Premier Money Management Account" seems the best, and "Goldwater Bank Savings Plus Personal & Business Account" looks good as well. Free withdrawals seem to be limited to twice a month but the withdrawal fee is pretty negligible relative to learning $20,000 in annual interest.
To increase yield, using CDs is an easy next step. Otherwise, opening a brokerage account and putting the capital into a money market fund or a short term bond fund would be a relatively low risk and higher yielding option.
A possible approach to this problem is to have a mixture of liquid and illiquid assets. Suppose an EA fund has $500K, with $100K in very liquid assets, $200K in moderately liquid assets, and $200K in fairly illiquid assets. Suppose the fund manager decides they want to give all $500K in the fund to a specific organization. In that case, they could give $100K to the organization immediately, which would hopefully tide them over until the $200K in moderately liquid assets became available, which would hopefully tide them over until the remaining $200K became available.
Almost all typical assets--bonds, stocks, commodities--are highly liquid, in the sense that if you decide to sell them, you can convert them into cash in a few minutes max. So even a well diversified portfolio can still be liquid. The main exceptions are real estate and private equity, but I see no reason why EA Funds need to hold those.
Looking at the EA Community Fund as an especially tractable example (due to the limited field of charities it could fund):
Since its launch in early 2017 it appears to have collected $289,968, and not regranted any of it until a $83k grant to EA Sweden currently in progress. I am basing this on https://app.effectivealtruism.org/funds/ea-community - it may not be precisely right.
On the one hand, it's good that some money is being disbursed. On the other hand the only info we have is https://app.effectivealtruism.org/funds/ea-community/payouts/1EjFHdfk3GmIeIaqquWgQI . All we're told about the idea and why it was funded is that it's an "EA community building organization in Sweden" and Will McAskill recommended Nick Beckstead fund it "on the basis of (i) Markus's track record in EA community building at Cambridge and in Sweden and (ii) a conversation he had with Markus." Putting it piquantly (and over-strongly I'm sure, for effect), this sounds concerningly like an old boy's network: Markus > Will > Nick. (For those who don't know, Will and Nick were both involved in creating CEA.) It might not be, but the paucity of information doesn't let us reassure ourselves that it's not.
With $200k still unallocated, one would hope that the larger and more reputable EA movement building projects out there would have been funded, or we could at least see that they've been diligently considered. I may be leaving some out, but these would at least include the non-CEA movement building charities: EA Foundation (for their EA outreach projects), Rethink Charity and EA London. As best as I could get an answer from Rethink Charity at http://effective-altruism.com/ea/1ld/announcing_rethink_priorities/dir?context=3 this is not true in their case at least.
Meanwhile these charities can't make their case direct to movement building donors whose money has gone to the fund since its creation.
This is concerning, and sounds like it may have done harm.
Note: EA is totally a trust network - I don't think the funds are trying to be anything like GiveWell, who you're supposed to trust based on the publicly-verifiable rigour of their research. EA funds is much more toward the side of the spectrum of "have you personally seen CEA make good decisions in this area" or "do you specifically trust one of the re-granters". Which is fine, trust is how tightly-knit teams and communities often get made. But if you gave to it thinking "this will look like if I give to Oxfam, and will have the same accountability structure" then you'll correctly be surprised to find out it works significantly via personal connections.
The same way you'd only fund a startup if you knew them and how they worked, you should probably only fund EA funds for similar reasons - and if the startup tried to make its business plan such that anyone would have reason to fund it, the business plan probably wouldn't be very good. I think that EA should continue to be a trust-based network, and so on the margin I guess people should give less to EA funds rather than EA funds make grants that are more defensible.
On this very website, clicking the link "New to Effective Altruism?" and a little browsing quickly leads to recommendations to give to EA funds. If EA funds really is intended to be a high-trust option, CEA should change that recommendation.
Yup. I suppose I wrote down my assessment of the information available about the funds and the sort of things that would cause me to donate to it, not the marketing used to advertise it - which does indeed feel disconnected. It seems that there's a confusing attempt to make this seem reasonable to everyone whilst in fact not offering the sort of evidence that should make it so.
The evidence about it is not the 'evidence-backed charities' that made GiveWell famous/trustworthy, but is "here is a high status person in a related field that has a strong connection to EA", which seems not that different from the way other communities ask their members to give funding - it's based on trust in the leaders in the community, not on objectively verifiable metrics to outsiders. So you should ask yourself what causes you to trust CEA and then use that, as opposed to the objective metrics associated with the EA funds (which there are far fewer of than with GiveWell). For example if CEA has generally made good philosophical progress in this area and also made good hiring decisions, that would make you trust the grant managers more.
I disagree – the funds are definitely positioned as more risky than e.g. GiveWell, but nothing like as risky as you're making out. Take the Global Health and Development Fund:
Reading that, I would come away thinking that donations from that fund ought to be rigorous in a (mostly) publicly-verifiable way (more than just a conversation someone had with someone).
This strikes me as making a false dichotomy between 'trust the grant making because lots of information is made public about its decisions' and 'trust the grant making because you personally know the re-granter (or know someone who knows someone etc)'. I would expect this is instead supposed to work in the way a lot of for profit funds presumably work: you trust your money to a particular fund manager because they have a strong history of their funds making money. You don't need to know Elie personally (or know about how he works / makes decisions) to know his track record of setting up GW and thereby finding excellent giving opportunities.
For information. EA London has neither been funded by the EA Community Fund nor diligently considered for funding by the EA Community Fund.
In December EA London was told that the EA Community Fund was not directly funding local groups as CEA would be doing that. (This seem to be happening, see: http://effective-altruism.com/ea/1l3/announcing_effective_altruism_community_building/)
Just noticed this, so sorry for the late reply! I (through EA Sweden) was the recipients of an EA Community Fund grant a few months back. I'll just say a few things about the grant, some general thoughts about the EA Community Fund and am happy to answer any questions you might have!
I'd say that there was a bit more information to go on than simply Will having seen me do EA group organizing over the past 5 or so years: I also provided a project proposal. However, I'd agree with the impression that the main factor in making the grant was about trust and first-hand knowledge of my work in the past.
If you wanna know more about what we've been up to, you can read our plans for the year (as of February) here: http://effective-altruism.com/ea/1kf/effective_altruism_sweden_plans_for_2018/
Abstracting from my particular situation, there currently seem to be growing pains in the EA community building-space. My impression is that the bottleneck is not good projects to fund, but rather ability to consider proposals and allocate funds. I think making funding decisions in the community building-space based largely on trust and proven track record is a good heuristic. However, it won't be particularly scalable and so needs to be supplemented by more time-intensive methods.
Given the small size of the EA Community Fund, it seems unreasonable for Nick Beckstead to be managing it. Once CEA is able to allocate their EA Community Building Grants effectively, I'd recommend the EA Community Fund being allocated by CEA rather than Nick Beckstead.
You said that the funds currently hold $1.1 million and that US Treasury bonds yield 1.7% a year. That's $18,700 a year in foregone revenue. In 80,000 Hours' survey of EA organizations, a new hire was seen as worth something in the neighborhood of a million dollars in forgone donations a year. So it's not surprising to me that the donations are held in cash—I could easily see the overhead of investing exceeding the potential returns.
Similarly, it's not surprising that the funds are slow to be disbursed. If each fund manager's time is valued at millions or tens of millions of dollars a year, the discount rate on the donations held in a fund isn't an overwhelming consideration.
But that raises the question, why create the funds in the first place? Someone at CEA would be best qualified to answer that. But I don't expect a timely answer, as their communication style tends (in my experience and in that of others on this forum) toward reticence and delay. (I suspect this is due to their placing higher priority on other projects rather than due to a desire to keep information private.)
If I were to speculate, I'd say that the CEA sees the funds as an experiment, and that they'll be abandoned if they don't eventually significantly more in donations. But it seems likely that they'll invest some more effort before giving up.
That's the annualized return on 3-month bonds, a short-term, zero-risk investment. Setting up such an investment would be trivial (and could surely be outsourced).
At the other extreme, you have the Wellcome Trust which holds Henry Wellcome's endowment; their investments have yielded an average of 14% per year since 1986. And those returns compound, too. As a result, they've been able to give away much larger disbursements than if they'd simply held the money in cash.
Quite so. They seem to be stuck in a place where there's enough money there for it to be wasteful to let it just sit around, but not enough for it to be worthwhile for the fund managers to make regular disbursements.
In theory, anyone can spend 15 minutes per week moving money in and out of index funds with a 5% expected annual return. Or using Betterment. Presumably there are some tax and administrative issues which would take up more time, but overall it sounds worthwhile.
In general I feel like donor lotteries should be preferred as a default over small donations to EA funds (winners can ultimately donate to EA funds if they decide that's the best option).
What are the best arguments in favor of EA funds as a recommendation over lotteries? Looking more normal?
(Currently there are no active lotteries, this is not a recommendation for short-term donations.)
I think the EA community has a limited data-set regarding availability of funding from EA orgs, and we try inferring more than we realistically can. OpenPhil's relationship to EA is rapidly changing, and OpenPhil is rapidly changing the EA movement. OpenPhil has established relationships with EA orgs of all majorly represented causes that as long as things keep going along an optimistic trajectory for them, they can expect up to 50% of their room for more funding per year to be filled by OpenPhil. OpenPhil has begun these relationships with EA orgs in the last year or two. Prior to that, OpenPhil as an organization was still finding its feet, and was more reticent about how large grants EA organizations might expect. I haven't worked at an EA org, but knowing people working at several, my sense is during giving season things are fraught for young(er) EA orgs who aren't sure if they'll have enough to keep the lights on for the next year. Knowing OpenPhil might clear anywhere between 0-50% of an org's budget doesn't do enough to reduce uncertainty. So it doesn't surprise me in spite of the apparent abundance of available funding from OpenPhil organizations rate donations today as worth so much more than the same amount donated a year from now.
I agree with a lot of the content here, but I disagree with this suggestion:
If the annual discount rate is 12% and funds are granted out annually, then I believe this implies an average loss of around 6%. But the expected loss of a grant to a default charity vs a carefully selected charity is likely to be far greater than 6%.
I haven't had time to follow up on it or post info about it to the EA Forum yet, but I sent an email to CEA. JP from the CEA said CEA expects the Far Future and EA Community funds to make more disbursements by July.
Because of discount rates, wouldn't it then be better to do all of the disbursements between updates right after the update, instead of dragging them out?
Or, since people will continue donating between disbursements, disburse as funding becomes available, and save a chunk (everything after a certain date) for the next update because it will be better allocated.
Thanks for the work on this. It seems very valuable: I agree that they seem to be an awesome idea and like an individual donor should be able to improve their impact easily with a fund. Unless, that is, issues like the ones you highlight eat all the gain.
I imagine the data wasn't available, but I thought I'd check: was there any more granular information on the funding history than just percentage of total donation that remains unallocated? Because that would seem to make a big difference: the more skewed towards the recent past donations are, the less discount rates would seem to be a problem
The March 2018 animal welfare fund update is here if you would like to add it.
The EA Funds website says that the Animal Welfare Fund only has $75,109 (also noted in the post), while the document you linked says it has $750,000+. If the latter is accurate (and does not include money committed but not yet donated), then EA Funds could be improved by providing more frequent updates on the amount of money in each fund (with real time updates being ideal).
I just noticed that Nick posted updates on the Community Fund and Far Future Fund pages (it's the same update on both pages) on 4/24. I'm commenting here for visibility since I have not seen these updates advertised anywhere.
"given the relative abundance of cash available to EA orgs (through OpenPhil and Good Ventures), a rate as high as this is surprising."
Three thoughts: i) the range of figures offered was very wide, ii) orgs that are strongly supported by large institutional donors gave lower figures, iii) if those orgs expect OpenPhil/GoodVentures/etc to give them even more money in future years, they could still sensibly report a high discount rate.
It's worth noting that Open Phil does not currently fund EA movement building organizations, so not all EA organizations have access to a large amount of money.
Edit: It turns out I'm wrong. See the reply to this comment.
That post is from 2015 and I don't think it's currently accurate. For example, Open Phil has granted to CEA and CFAR since that time.
That is such a great news!!