Last summer’s tax law changes introduced new floors on charitable deductions for high earners. In response, donor-advised fund (DAF) contributions surged.
According to the Wall Street Journal (paywall), new accounts rose 123% at National Philanthropic Trust and nearly doubled at Vanguard Charitable in the final months of 2025, as donors moved appreciated assets into tax-advantaged vehicles at historic valuations.
Today, more than $326 billion sits in DAFs — capital explicitly set aside for public good but not yet deployed.
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The DAF policy debate has centered almost entirely on payout rates. Unlike private foundations, which must distribute at least 5% annually, DAFs have no federal minimum. But that framing misses the point.
The more urgent question is not when is this capital granted, but instead, how is it working in the meantime?
Right now, most DAF capital is working similarly to any other pool of wealth. Most of these assets remain in cash, money market funds or conventional portfolios, generating market returns while the intended impact is deferred.
This seemingly neutral choice represents a massive missed opportunity.
Impact-first investing: A straightforward solution
A growing set of solutions to our most persistent social challenges, such as affordable housing, childcare, community-based lending, regenerative agriculture and workforce development, operate with real, durable business models. They generate revenue, preserve capital and, in some cases, produce modest returns.
Yet traditional investors routinely overlook them because they fall outside conventional risk-return parameters. At the same time, they do not fit neatly into grantmaking. As a result, they remain chronically undercapitalized.
This is precisely the gap that impact-first investing is designed to fill.
The premise is straightforward: Prioritize measurable social or environmental outcomes while structuring capital to recycle. Each dollar can be deployed, returned and redeployed, compounding its impact over time.
Consider early childcare. Providers are small businesses with strong community demand, yet they consistently lack access to affordable, flexible capital.
An organization like the Low Income Investment Fund can address this gap by providing capital, technical assistance and policy support. The capital it lends is repaid and recycled to support additional providers, extending the reach of each original investment.
Returns are modest, but capital preservation is strong, and the social outcomes — expanded access, increased capacity, improved quality — are both tangible and measurable.
Another organization, Care Access Real Estate (CARE), tackles the largest cost barrier providers face: Real estate. CARE acquires, renovates and leases properties to quality licensed childcare providers at affordable rates, allowing them to scale their businesses.
It also offers a purchase option that creates a pathway to property ownership and wealth-building.
Now consider the scale of what is possible. If just 10% of DAF assets were allocated to impact-first investments, that would unlock more than $32 billion in catalytic capital.
Deployed thoughtfully, that capital could accelerate business models that generate income, build wealth, expand access to essential services, and strengthen community and climate resilience, all while preserving and recycling philanthropic resources.
We see a consistent pattern among ultra-high-net-worth individuals and families. Interest in impact-first investing is high. In a 2019 survey of 270 DAF donors, roughly three-quarters expressed a desire to deploy capital this way.
The barriers are practical, not ideological: Sourcing credible opportunities, conducting diligence, constructing diversified portfolios and measuring outcomes with rigor. With the right infrastructure and expertise, these are solvable problems.
The result would be a more effective use of philanthropic capital. Grants would continue to flow. At the same time, impact would compound as investments are repaid and redeployed into new solutions. This is not about replacing one tool with another. It’s about expanding the toolkit.
Charitable capital has already received its public subsidy. It should be working as hard as possible for the public good.
Not someday. Now.
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