All is quiet at IGY Foundation Galactic HQ.

Each morning we shuffle in, swap shoes for slippers, ease into our favorite chair, pull up a pile of reports, and sift through them in the search for new charities and investments. While we are happy with the investments we have made and the charity projects we support, there is always more to learn—and besides, it is fun to keep up with the various soap operas. Recent research has included a carpet distribution business in the UK and a new startup electric car company in the US, a visit to a prison in north London and a program to teach head teachers.

When Zak and I were running our investment fund, we sought to invest in the right people: rational, patient, customer-oriented, first-principle thinkers who saw the business problem the same way we did. The firms we favored were often quietly run, eschewing public relations, advertising, and sometimes, heaven forbid, investor relations, instead preferring to let their actions do the talking, adding more chicken to the chicken soup, as it were. In turn customers recognized the quality and value of the relationship and chose to spend more and tell their friends. And so the businesses grew in a self-reinforcing but often unhurried way, funded by internally generated cash flow. It is interesting to see how these characteristics, which have generated investment returns of around 20 percent per annum for nearly 25 years, can also be applied to charities.

The best charities we have observed are also run by humble, patient principals who are oriented around the beneficiary, not the donor, and often reject the industry-standard approach of sizable marketing budgets, gala dinners, and open-outcry fundraising auctions. Instead, they quietly get on with their work and let a group of donors with a similar attitude to life find them. While growth may be slower as a result, they recognize that, at a certain rate, growth can compromise quality and undermine the integrity and reputation of the organization in the long run. Better to build slowly on rock than quickly on sand. For their part, the donors at such charities are less likely to seek to promote themselves through their charitable giving by putting their names on new buildings or projects, instead supporting the charity with multiyear anonymous donations and friendly but robust advice. The ecosystem is small but perfect.

At the IGY Foundation, the work we do also sets up what, at first, looks like a typical investment problem, namely, how should we think about future cash flows? In particular, how do we decide whether to donate money to a charitable project today or, instead, invest the money today in the expectation of donating a larger sum in the future? Wealthy individuals have struggled with this issue for centuries. At one extreme, we have Andrew Carnegie concluding in 1868, and at the ripe old age of 33, that “the man who dies thus rich dies disgraced,” while others, who would have been known to Carnegie, gave their names to foundations that are still in existence today.

What follows is our take on the problem, and a possible solution.

Traditional, rational economic analysis of a donate-today versus invest-for-a-bigger-donation-tomorrow decision would start with a discussion of opportunity costs. Under this framework, donations to charitable projects are one of many opportunities (both investment opportunities and other charity projects) and, to merit funding, returns must exceed those available from alternatives. That calculation is easier said than done, not least because the gains from investing accrue to the investor, while gains from charitable activity accrue to somebody else entirely, usually many people. They certainly do not sit on the donor’s balance sheet!

(Parenthetically, it does not always help that the analysis is often reduced to a dry mathematical affair. On one level, investors may provide the capital to build the assets to house the people who produce the goods the customer wants—but, on another level, investors are rarely involved in any of it. Investors own pieces of paper, a factor that encourages the sense that their role is one level abstracted from the actual doing. The same level of abstract separation can exist when making charitable donations, and it is a rare charitable foundation report that does not resort to an audit of dollars or pounds spent, as if the relationship was with the money rather than the people.)

So, what is to be done? Might we suggest some simple adjustments to help reframe the issues?

First, think of the pieces of paper as the means by which one accesses the work done by the good people who run the underlying operations. Zak and I often thought of our holding in Costco not as so many shares but as, say, 100 square feet of every Costco on the planet, and 100 square feet of the ones yet to be built too. In the ’90s, we jokingly attributed a holding in Manchester United Football Club as the equivalent of owning star striker Eric Cantona’s foot (I don’t recall which foot, and that probably makes a difference!). Warren Buffett often describes Berkshire Hathaway’s investment in Coca-Cola in terms of so many bottles of Coke sold and the proportional profit earned for Berkshire Hathaway as “look-through earnings.”

Using a look-through approach (by attributing to the donor their share of the work done by a recipient charity, in proportion to the donor’s share of the recipient charity’s revenues), the work done by the IGY Foundation this year can be described as follows: 1.8 million free meals provided to London charities; 60,000 counseling text conversations with young people in crisis; half of the phase 1 trial costs to find a treatment for a terrible, debilitating genetic abnormality; 45,000 schoolkids given an initial mental health awareness course; 30 teachers trained to be head teachers; a dozen ex-offenders trained to be professional bike mechanics; 300 adults at immediate risk of suicide given one-on-one counseling; 586 kids given year-round after-school tuition in preparation for exams; 170 underprivileged young people taught to ride a horse, 150 taught to ski, and 65 taught to box (sports activities can be good forums for social work); 30 underprivileged young people given scholarships to attend the best universities; and the list goes on. (It may be worth mentioning that the cost of running the IGY Foundation amounts to much less than 10 basis points of Foundation assets most years, and our auditors may blush to learn that they often present the largest single invoice. It is not uncommon for other trusts and foundations to have total expense ratios an order of magnitude greater.)

These are some of our look-through donations. But what of the returns?

It may be tempting to conclude that the returns from charitable donations cannot compete with investing’s compound interest, Einstein’s eighth wonder of the world. The accounting certainly suggests that. So, a further adjustment is to bring back onto the donor’s balance sheet the gains made by other people as a result of their charitable donations. There can be quite a return if the consumption of public services by those detained at His Majesty’s pleasure (in prison) can be transformed into payment of employment or business taxes, for example through ex-offender rehabilitation and education programs. We have seen independent studies that imply a return of between 8-to-1 (over five years) and 33-to-1 (over 20 years) for the work done by one program that rehabilitates the most troubled young people. Similar results are suggested for some education projects. So returns can be right up there with the best the stock market has to offer, and—I’ll whisper this—maybe better than Zak and I will achieve going forward.

May we suggest one final factor to help reframe the donate-today versus invest-today-to-donate-more-in-the-future decision, and that is to recognize that the returns from investing and returns from charity work can have very different second-, third- and fourth-order effects? It is quite normal for returns in business to fade over time as rival firms compete for the spoils. In this sense, the rest of the world is working against the investor. Compare this to the ripple through society from, say, a young person turning away from crime to start their own business or family, and the domino effect that may have on those around them and the next generation of would-be criminals. Or the teacher who inspires greatness in a pupil, or the improvement from turning a bad school into a good one. Not all of the second-, third-, and fourth-order effects can be captured in an analysis, at least not with much certainty, but what you can’t measure sometimes matters more. By far the most important adjustment, we would suggest, is therefore to recognize that in charitable work good behavior can beget good behavior but that unlike returns earned in business, the good behavior does not fade under pressure from competition. Indeed, quite the contrary: It is often contagious. In this sense, the rest of the world is working with you.

In our opinion, the human traits of rationality, humility, a win-win orientation, and patience, which can be so richly rewarded when investing for the long run, are also those required by the most successful charitable projects. We would predict that the return from funding a successful charity project, properly appraised using the simple reframing mentioned here, will be meaningfully superior to the return from the average stock market investment. Indeed, charity’s ability to create a self-reinforcing, contagious virtuous spiral of good behavior begetting good behavior seems to us to be the—often overlooked—point of the excess wealth in the first place. In our opinion, it is the ninth wonder of the world.

Nick Sleep
Winter 2025