How and When to Use Intermediary Funds

Intermediary funds are appealing choices for donors who want to enter a new funding space, respond to urgent needs, or lack the time to commit to an issue they care about, among other reasons. Here, Chloe Cockburn of Just Impact Advisors outlines what intermediaries are, when donors should use them, and how to select a fund.

Donors interested in funding social change hear a lot about how taking impact seriously requires a big commitment to trust people who are best positioned to know where money needs to go. But how should donors select where to place that trust, if they aren’t going to hire a large staff in the area of interest? Philanthropic intermediary funds have emerged as a favorite option for many donors, since intermediary funds can invest in a strategy while remaining transparent and accountable to donors.

There are several excellent recent articles written about why to use intermediaries, including for reasons of equity and return on investment, in addition to low costs. However, for philanthropy to really make the shift to leveraging the full benefits of intermediary funds to achieve social change, there needs to be a roadmap for donors to know when to use them and how to select them.

What is an intermediary and why do people like them?

Intermediary funds run by expert philanthropic fund managers allow funders to access the high-quality field expertise, strategic thinking, and relationships with key leaders necessary to get a lot of bang for the buck, without having to hire staff. Stephen Kump describes intermediaries as employing a “philanthropic agency” model, which calls for donors to “place trust in someone (an agent or agents) who has an impact-oriented mind and is partnered with organizations ‘on the ground.’” This enables intermediary funds and their donors to be highly responsive, trusted, and dynamic partners to groups on the ground, and to move resources quickly and effectively. And because they are aggregating money, intermediaries can give organizations the amounts they need to experiment and be ambitious. Philanthropy Together put together a great overview presentation on collaborative funds that spells out a lot more relevant components here.

Intermediaries have been defined as part of a growing field of collaborative funds, with a specific focus on raising and regranting money, often with a focus on equity. According to the Bridgespan Group’s recent, extensive survey on collaborative and intermediary funds, growth of these funds has been enormous. Seventy-five percent of such funds were created in just the last 15 years and there are now over 400 funds around the world moving $4-7 billion a year, and increasing (see also the Raikes Foundation report on single-issue funds). A subset of these funds are intermediaries that are focused on solving major social problems, such as Groundswell.

When to use an intermediary

When you care a lot about an issue but you don’t have capacity to spend time on it

Donors who are busy with other pursuits but care about an issue and want to make sure money is well spent probably have the most to gain from working with intermediaries. Giving to a fund allows them to skip the work of assessing and meeting grantees, figuring out when and how much to fund, dealing with grant logistics, and following up to see what happened. Moreover, there is a fund manager who can readily explain to the donor whether the strategy is bearing out, what the successes and failures are, and what are the next steps in the work, giving confidence that money is well spent.

When newly entering a space that you hope to go deep in eventually

Donors who are new to a funding space and who want to go deep eventually but don’t want to delay their entry for years can use intermediaries to achieve scaled impact right away. They can learn alongside the fund, developing a feel for the terrain and eventually the knowledge and confidence that will enable them to make powerful grants. They can also connect with and learn from peer funders.

When scaling up your giving to respond to urgent needs

Where an issue experiences massive growth in public visibility and importance and needs to be able to absorb money quickly, intermediaries can fill the gap. They use their proximity to evaluate where money needs to go in real time across an entire field of work, and help move resources faster and in larger amounts.

When daunted by a field’s complexity and potential risks

Especially in emerging fields, the number of potential entry points on the problem can be really numerous. An intermediary can source information about which leaders have the real depth and vision to move forward, and then can carve a clear strategic path. A grant that might seem risky for a foundation making three to five grants in an area of work, whether because the impact seems uncertain or the organization’s capacity isn’t fully developed, becomes just one of many grants with varying risk profiles in an intermediary fund’s portfolio. Moreover, intermediaries have deep networks and established presence in the field and are often the first to hear about new leaders. These funds can support grantees with access to coaching, training, and introductions that will improve their work.

When uncertain about the timeline of commitment

Donors uncertain about how long they will be giving to an issue may gravitate to the largest and safest organizations, not wanting to cause disruption if they decide to pull back their funding. Intermediary funds enable donors to contribute to a long-term strategy despite the uncertainty of longer term commitments.

When transitioning your family philanthropy to the next generation

When younger generation family members begin taking a more active role in their family giving plans, they often tend to prioritize new issues like social and racial justice. These may require new models of giving and new kinds of relationships with grantees. In these situations, relying on intermediaries can ensure that money goes to the new generation’s priorities without having to immediately transform the foundation’s operating style.

When the contribution is relatively small but your vision is large

Intermediaries offer the chance to partake in a large strategy even if the contribution is modest. Rather than splitting this commitment into tiny grants that won’t make much difference to grantees but will take up time for processing and reporting, the donor can join a larger story and strategy. Bridgespan determined that the existing ecosystem of intermediary funds could two to three times their grantmaking budgets with minimal staff expansion, and with the proper support the same is true for the outcomes possible if grantees were funded to meet their potential rather than to struggle to get by.

When prioritizing equity

Almost half of intermediary funds are led by people of color compared to only 10 percent of US foundations, while more than 70 percent are led by women and gender non-binary people. Intermediaries are well-situated to move money to directly impacted groups and communities without having to learn or shift their giving practices to make it happen fast. Many donors spend years hiring diverse leaders and co-creating new, equity-focused strategic plans that result in compelling portfolios of diverse grantees; intermediaries can offer a faster, more efficient route to the same goal.

How to evaluate funds and fund managers

One critical reason why intermediaries aren’t already covering more ground in philanthropy is that there isn’t yet a consensus about how to evaluate whether a fund is a good fit. When investing funds with a money manager, the obvious approach is to look at their track record in making money. That’s easy to figure out by looking at a balance sheet. With philanthropic funds, the effectiveness of the funding may require some expertise to assess. But there are still things that funders can do to decide who to trust.

Strategy: A fund manager should be able to explain to you how they plan to use money to get from A to B to C on the issue. They should point to a track record that showcases their ability to strategically assess the context and make smart funding decisions that produced results. They should have strong opinions about the field and its organizations, without being partisan to a specific style or strategic lane.
Expertise: Fund managers should have specialists on the team with a lot of experience and who are deeply enmeshed in field networks. They should be able to get information that only high-trust relationships can provide. They should be ready to answer your questions, including about how they seek and produce results. They should be people you can learn from.
Track Record: Fund managers should be able to point to a successful track record with a strong return on investment. They must account for how the individual wins are in furtherance of the overall strategy and what their implications will be. Failures are to be expected; fund managers should be able to explain any lessons taken from those failures.
Trustworthiness: Partnering with a fund manager requires a high degree of trust. When you talk with prospective fund managers about their track record, pay attention to what they’ve learned and how their funding has evolved over time. Fund managers should also be able to highlight failures in their own judgment and explain how they would do things differently in the future. If you struggle to get comfort that they will tell you when things aren’t going well, or will hesitate to adjust their strategy away from something that isn’t working, that is not the fund manager for you.

Conclusion

The paradigm shift in philanthropy toward intermediary fund based giving holds enormous potential to shape the future, and it is ready to take form. The infrastructure is there. 400+ intermediary funds are ready today to move $10B+ dollars more to impactful fields of work. The money is there. America’s billionaires grew their wealth by 87 percent since the start of the Covid pandemic, per IPS. The missing piece is the will of those in control of America’s nearly $1.5 trillion in foundation wealth. Whether you manage a small family foundation or a large established institution, shifting your giving in some degree from choosing organizations to choosing fund managers can create greater impacts for your grantees, and a better world for your children. We hope these reflections give you confidence to make that shift, and some helpful tools to choose wisely.

Chloe Cockburn is the Founder and CEO of Just Impact Advisors.

The views and opinions expressed in individual blog posts are those of the author(s) and do not necessarily reflect the official policy or position of the National Center for Family Philanthropy.