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Patrick comments on How to improve EA Funds - Effective Altruism Forum

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Comment author: Patrick 06 April 2018 03:53:28AM 6 points [-]

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.

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.

Comment author: Henry_Stanley 06 April 2018 10:14:38PM 1 point [-]

US Treasury bonds yield 1.7% a year. That's $18,700 a year in foregone revenue

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.

Comment author: kbog  (EA Profile) 17 April 2018 08:36:38PM *  0 points [-]

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.

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.

Comment author: Henry_Stanley 06 April 2018 10:15:44PM 0 points [-]

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?

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.