"pay operating costs" is one place non-profits often find fraud. Getting the money into the market between donors and builders, now you have to pay professional investors. You don't get to 7-8% returns without equities, what happens if the market tanks?
Why not build something super minimal that requires less management and operating costs? That doesn't have the market risk at the center of it all? That doesn't have more points for fraud and abuse?
Can you explain the 2-3% gap between expected returns and outlays? Seems like a lot more than what is needed for accounting (based on the other main person here posting)
The explanation is simple — nobody can predict exact annual returns, and they tend to fluctuate. We aim to spend at least 5% per year on OSS grants and need to decide if we can spend more on them or should reinvest based on specific annual results. And target earnings should overcome inflation.
> Why not build something super minimal that requires less management and operating costs? That doesn't have the market risk at the center of it all? That doesn't have more points for fraud and abuse?
The best long-term protection from fraud and abuse are aligned incentives through skin in the game. That’s why we legally require all people in governance to be Members ($1000+/year donation). This is an important topic, and here you can find more context on this: https://kvinogradov.com/osendowment/
I think this is really missing the point of the question. I know that it is common for endowments to be invested "in the market" - people believe that's the most responsible thing to do. But the question was about why do things the normal way? Why link up market performance of a set of investments with funding mechanisms for OSS? If you're going to be bold and try to fund something that is, in market and economic terms, quite off-norm, why do that using entirely normal systems that are at the core of a capitalist economy?
There are areas where we experiment and take risks: raising the first-ever endowment for open source, making it very lean and digital-first, relying on bottom-up funding and governance instead of large corporate donors, etc.
But all other areas should be as low-risk as possible — like accounting, legal, and investment management of a community endowment fund. We are exploring a few ideas on how to grow the fund faster than the market without increasing its risk profile, but they are complementary to a very conservative core strategy.
Besides OSE, I am a full-time VC — that's the area where investors are bold and invest in off-norm opportunities, but it lies on the totally opposite side of the investment risk spectrum. And directly mixing them does not seem like a good idea.
“super minimal that requires less management and operating costs” - that’s exactly our current setup, and always will be the target!
Now OSE has no paid employees - the team is 100% volunteers. Its Board Directors and the Executive Director are required to personally donate $1000+/year. Operating costs are close to zero.
As organization evolves there might be higher operating costs, but our commitment to keep them as low as possible.
"pay operating costs" is one place non-profits often find fraud. Getting the money into the market between donors and builders, now you have to pay professional investors. You don't get to 7-8% returns without equities, what happens if the market tanks?
Why not build something super minimal that requires less management and operating costs? That doesn't have the market risk at the center of it all? That doesn't have more points for fraud and abuse?