Personal Finance

This charitable investing strategy was an early investor in Beyond Meat

Key Points
  • One donor-advised fund's early investment in Beyond Meat six years ago paid off big when the company made its stock market debut in May.
  • ImpactAssets, the non-profit financial services firm behind that fund, is beefing up its number of venture investments that aim to bring a positive environmental and social impact to charitable giving.
  • Because donor-advised funds require less capital and oversight than foundations, they could create a "democratization of philanthropy," one expert says.

The name Beyond Meat has been on investors' lips since the company's successful May initial public offering.

But one investor in Beyond Meat, non-profit financial services firm ImpactAssets, bet on the company six years ago, long before the company became a household name.

And that investment has helped boost the firm's charitable assets. ImpactAssets' initial philanthropic investments of $1.1 million in the company climbed to $16.9 million based on Beyond Meat's opening day.

Ethan Brown, founder and CEO of Beyond Meat, center, rings the opening bell during the company's IPO at the Nasdaq in New York on May 2, 2019.
Michael Nagle | Bloomberg | Getty Images

Now, depending on the day, that investment can be worth $40 million to $50 million, according to ImpactAssets President Timothy Freundlich.

"Everybody is surprised," Freundlich said of the IPO's pop.

To date, ImpactAssets has about $1 billion in assets in its donor-advised fund that focuses on investments that aim to have a positive environmental and social impact.

The strategy comes at a time when donor-advised funds are growing. A donor-advised fund is a charitable investment account in which individuals making deposits immediately become eligible for tax deductions for those donations. The donations, however, can be given to charity over time.

It also comes as interest in environmental, social and governance — ESG — or impact investing is gaining popularity.

'Democratization of philanthropy'

Contributions to donor advised funds climbed to $29.23 billion in the U.S. in 2017, or 10.2% of total giving, according to National Philanthropic Trust's annual report for 2018.

Meanwhile, charitable giving by individuals in America fell by 1.1% in 2018 to $292 billion, according to Giving USA, following the implementation of the Tax Cuts and Jobs Act.

"What we are seeing is that donor-advised funds are continuing to be strong," said Keith Curtis, a board member and immediate past chair of the Giving USA Foundation.

More investors set up donor-advised funds at the end of 2017 in anticipation of changing tax rules, Curtis said. Changes instituted under the Tax Cuts and Jobs Act have made it more difficult to itemize deductions, including charitable contributions, because of a higher standard deduction.

Donor-advised funds typically only require $5,000 to $10,000 to set up, unlike private foundations, which require higher levels of capital and professional management. "It's sort of the democratization of philanthropy," Curtis said.

VIDEO3:1803:18
Uber and Beyond Meat were millennial favorites in June, says strategist

Of note, once an investor makes a contribution to a donor-advised fund, the sponsoring organization has legal control of that money. However, the donor still acts as an advisor with respect to the distribution of funds.

ImpactAssets works with clients with $5,000 to $50 million and "everything in between" to invest, according to Freundlich.

"We're open for business for the mass affluent and their advisors," Freundlich said.

ImpactAssets is working mostly with boutique multifamily offices and high-end registered investment advisors. Bigger contributions — $1 million and up — tend to drive most of its growth, according to Freundlich.

More from Personal Finance:
Morgan Stanley to let clients use donor-advised funds focused on drug discovery
What you can learn from Sheryl Sandberg's charitable giving plans
Two tax-friendly ways to donate money

There's currently no shortage of investment opportunities, he said. When ImpactAssets began doing direct investments around the time it invested in Beyond Meat, the firm was doing one or two deals a year. Now, it's around three a week, Freundlich said.

Its venture investments range from private debt to equity funds and also include for- and non-profit organizations.

ImpactAssets has approximately 600 direct investments. Examples include other alternative food companies, such as BlueNalu, Inc. and Misfit Foods.

"Are there other Beyond Meats in there?" Freundlich said. "Who knows?

"You don't know for years," he added. "It happened to be one of the early ones that seasoned."

Emerging opportunities

Donor-advised funds that focus on social or environmental impact, like other areas of investing, are still emerging.

"It hasn't historically been the easiest thing to do in a donor-advised fund because one of the nuances of a donor-advised fund is you want liquidity for grant making," said Rene Paradis, chief operating officer at National Philanthropic Trust.

ImpactAssets typically gives out about 12% to 15% of its asset base every year, which is more than foundations, Freundlich noted.

VIDEO1:2701:27
Socially responsible investing

Impact strategies could be an opportunity for individuals who want to put their grant dollars in areas they care about. "We think impact investments is a unique opportunity in a donor-advised fund," Paradis said.

Investors who are interested should brush up on the terms used in the marketplace — whether it be ESG, impact investing or socially responsible investing – and research what the donor-advised fund sponsor provides.

"It's important for investors to talk to their financial advisors and understand what the offerings are," Paradis said.