Diversification is the time-tested strategy fund managers and individuals use to balance investment portfolio risks. Among other benefits, this approach enables the investor to seek out lesser-known, new, and innovative companies that may outperform the market while simultaneously maintaining positions in generally stable opportunities. While this approach applies to investment portfolios, it’s also well suited to grantmaking.
How Philanthropists Can Diversify Their Grantmaking Portfolios
It’s about creating a balance of grant types, categorized by operations, growth, and risk.
July 07, 2022
Westend61/Getty Images
Summary.
Foundations, corporate philanthropy, and donor-advised funds grant more than $140 billion annually and have become far more strategic in their grantmaking efforts over the past decade. This emphasis on strategy shifted the field’s focus toward asking grantees to be intentional about measuring their outcomes and building sustainable programs. As a consequence, the added attention to strategy has resulted in philanthropy becoming more risk averse, leading nonprofits to focus on easier-to-achieve outcomes so they do not fail. Innovation, in turn, takes a back seat to securing funding, and transformational change becomes harder to achieve. Without intentionally diversifying one’s grantmaking portfolio, funders miss out on maximizing their social return — and frankly, will underperform in relation to meeting the community’s evolving needs. Here’s how grantmakers can best achieve diversification through a balance of grant types organized into the operations, growth, and risk categories.