It has been a few days since this answer of yours (and other comments) have appeared. This has caused a little anxiety. This has appeared in several private discussions.
Below is an external, non-sympathetic take. Can you check this content over and give your perspective or reaction?
Here is some public information:
If you look at the its entry on the forum wiki, it is clear that most of CEA’s funding, excluding FTX, is from a major institution in EA.
If you look at the new EV entity, you will find that the board members include people from that EA institution.
If you visit the EA funds website and look at the funding managers, you will almost always find one person from the major EA institution, and that person is often the most senior person on that fund.
Additionally, if you follow staff transitions, you will find that people have moved between CEA and that EA institution.
Lastly, if you watch YouTube videos about EA funds, you will find information that suggests to me one explanation for the role of EA funds (e.g. allows smaller, speculative or exploratory grants, offloads operations costs).
I believe the above is good evidence that CEA serves important, irreplaceable roles for both EA and that EA institution. That EA institution has access to a large amount of funding.
The collapse of EA funds or other CEA entities would be destructive. From the above, I am certain this would not be allowed to happen if it was just required backfilling the $14M of FTX funding, which has additional value in averting harm to grantees and other projects.
I have no inside knowledge on what Unnamed Big-Money Organization (UBMO: I’ll follow your lead and not name it) would do if CEA were actually insolvent.
While I’m not familiar with UK insolvency law, I assume the basic principles are similar to US bankruptcy law. Basically, you are correct that a white knight can come in and save the distressed organization—at a high level, options include buying all its assets (name, etc.) out of bankruptcy or (perhaps more efficiently) by persuading the creditor that they are better off with a settlement funded by the third party that gives the creditor as much as they would get in bankruptcy/insolvency. It would probably be a bad idea to disclose any such plan publicly, so the absence of any public discussion of the plan should not influence your assessment of its likelihood.
None of that changes the bottom lines of my comment: being restructured in bankruptcy, or having a massive public bailout, is “very, very bad” for an organization. The idea that UBMO would bail out CEA/EVF supports the conclusion that “I generally would not donate to an organization with potentially catastrophic FTX risk” too. In a bailout situation, either the money you donate in December 2022 is likely going to creditors or will likely increase the price UBMO would have to pay to get the creditors to drop their claims. In the latter event, you’re likely causing UBMO to spend less on your preferred cause area—either in that year or future years—because of the bailout.
And while I think it’s reasonable to think UBMO would bail CEA/EVF out, it’s hardly a sure thing. For instance, UBMO might think that CEA/EVF is irretreviably linked with the FTX scandal and is not worth saving wholesale due to optics concerns. Although presumably UBMO would fund a new organization that would take over many of the current functions/people from CEA/EVF, this would still be a painful transition for a lot of people.
$14MM isn’t the worst-case scenario. As far as I can tell, CEA per se does not have an independent legal existence (it “is a project of Effective Ventures Foundation (England and Wales registered charity number 1149828 and registered company number 07962181)”), so EVF is probably the correct frame of reference. There’s over $30MM to EVF organizations from the Future Fund. The amount given back to 2018 from other FTX/Alameda-linked individuals is unknown; the plausible worst-case scenario includes those monies as well for reasons noted in one of my posts. The exposure is practically limited, however, to CEA/EVF’s total asset value in bankruptcy/insolvency. Latest public data I saw, while dated, suggests that total assets were ~ $44MM between the UK org and its wholly-owned US subsidiary.
In a different comment, I suggested that perhaps other legally-safe organizations should start collecting and retaining custody of monies people want to donate to EA Funds. I am aware of those Funds’ importance ; that’s why I suggested it might be necessary to move incoming cash somewhere we could be confident the Funds will achieve their intended purposes with incoming cash. I’m sure an FTX Creditor Recovery Fund can be set up for those who actually want their money to go there.
If you want to give money to a charity that is headed toward insolvency/bankruptcy, you do it after the bankruptcy filing.
--
As far as the reasons to talk about the worst-case scenario as a possibility despite that causing anxiety:
EA Funds alone typically takes in several million in December due to the end of the tax year. In addition to concerns about flushing that money down the toilet (as discussed above), there are going to be a lot of furious, betrayed donors if it turns out that happened (especially if the risk was known by mid to late November and not promptly communicated to would-be donors).
If there is going to be either a massive bailout or a bankruptcy, that is likely to affect people in various ways, and those people need time to brace for impact. Even if UBMO comes to the rescue, the situation is likely to adjust its bar for funding of other projects.
If there is risk, it is possible for CEA to take at least some action here without exposing any information. One obvious low-hanging fruit: announce that the EA Fund in global health/development is closing to new donations, effective immediately, because it is duplicative of GiveWell All Grants. That action and explanation would leak no real information that hasn’t been leaked by pausing EAIF for several weeks without explanation, and potentially keeps millions in December donations in safer hands.
My hope was that CEA/EVF might respond to the original post and/or my comment with actual substantive information that reassured would-be donors and other stakeholders. For example, “we are confident based on legal advice the EA Funds are restricted funds protected from CEA/EVF’s general creditors under UK and US law” would be significantly reassuring.
Finally, I noted in my comments that I am making pessimistic assumptions without any inside knowledge, and why I was doing that. So people can assess those assumptions, conduct their own research and analysis, and update accordingly.
On the other hand, we are assuming UBMO is willing and have enough slack to come for the rescue. That may be untrue if the heads of UBMO are particularly disappointed, or momentarily without liquidity (because of tech stocks etc.). in the latter case, nobody would broadcast there’s a problem, because it’d only make things worse, and soon it’d all be over.
My guess is that the main reason you are not seeing a lot of communication is that there is not a major problem.
However, if there was a problem, I think the EA institution cannot simply quickly backfill 8 figures of funding by making a formal legal promise, or by delivering a cash transfer in a week’s time.
If there was a plan to implement this backfilling, I think there are a lot of steps upstream to seeing messaging:
The ties mentioned above might create legal or risk management challenges.
The nature of the FTX collapse presents issues with clawbacks, and this has unique legal characteristics.
Separate from legal issues, this sort of commitment or backfilling has to be coordinated at the most senior levels, it probably involves meetings with the two boards, and other stakeholders.
How this could be communicated has to be considered (the Wytham Abbey purchase is going poorly)
There are other possibilities or side actions: CEA probably has other sources of funding, and it might prefer to use those to show diversity.
All of the above should take weeks of time under normal conditions: there’s a legal dependency, an executive/leadership dependency, and then a media/communications dependency. All of these processes are slow, must be done in “serial’, and this is occurring one of the busiest times possible.
CEA has continued its operations, including proactively distributing new funding guidelines in a way that suggests a disciplined, thoughtful rollout.
Hi Jason,
It has been a few days since this answer of yours (and other comments) have appeared. This has caused a little anxiety. This has appeared in several private discussions.
Below is an external, non-sympathetic take. Can you check this content over and give your perspective or reaction?
Here is some public information:
If you look at the its entry on the forum wiki, it is clear that most of CEA’s funding, excluding FTX, is from a major institution in EA.
If you look at the new EV entity, you will find that the board members include people from that EA institution.
If you visit the EA funds website and look at the funding managers, you will almost always find one person from the major EA institution, and that person is often the most senior person on that fund.
Additionally, if you follow staff transitions, you will find that people have moved between CEA and that EA institution.
Lastly, if you watch YouTube videos about EA funds, you will find information that suggests to me one explanation for the role of EA funds (e.g. allows smaller, speculative or exploratory grants, offloads operations costs).
I believe the above is good evidence that CEA serves important, irreplaceable roles for both EA and that EA institution. That EA institution has access to a large amount of funding.
The collapse of EA funds or other CEA entities would be destructive. From the above, I am certain this would not be allowed to happen if it was just required backfilling the $14M of FTX funding, which has additional value in averting harm to grantees and other projects.
I have no inside knowledge on what Unnamed Big-Money Organization (UBMO: I’ll follow your lead and not name it) would do if CEA were actually insolvent.
While I’m not familiar with UK insolvency law, I assume the basic principles are similar to US bankruptcy law. Basically, you are correct that a white knight can come in and save the distressed organization—at a high level, options include buying all its assets (name, etc.) out of bankruptcy or (perhaps more efficiently) by persuading the creditor that they are better off with a settlement funded by the third party that gives the creditor as much as they would get in bankruptcy/insolvency. It would probably be a bad idea to disclose any such plan publicly, so the absence of any public discussion of the plan should not influence your assessment of its likelihood.
None of that changes the bottom lines of my comment: being restructured in bankruptcy, or having a massive public bailout, is “very, very bad” for an organization. The idea that UBMO would bail out CEA/EVF supports the conclusion that “I generally would not donate to an organization with potentially catastrophic FTX risk” too. In a bailout situation, either the money you donate in December 2022 is likely going to creditors or will likely increase the price UBMO would have to pay to get the creditors to drop their claims. In the latter event, you’re likely causing UBMO to spend less on your preferred cause area—either in that year or future years—because of the bailout.
And while I think it’s reasonable to think UBMO would bail CEA/EVF out, it’s hardly a sure thing. For instance, UBMO might think that CEA/EVF is irretreviably linked with the FTX scandal and is not worth saving wholesale due to optics concerns. Although presumably UBMO would fund a new organization that would take over many of the current functions/people from CEA/EVF, this would still be a painful transition for a lot of people.
$14MM isn’t the worst-case scenario. As far as I can tell, CEA per se does not have an independent legal existence (it “is a project of Effective Ventures Foundation (England and Wales registered charity number 1149828 and registered company number 07962181)”), so EVF is probably the correct frame of reference. There’s over $30MM to EVF organizations from the Future Fund. The amount given back to 2018 from other FTX/Alameda-linked individuals is unknown; the plausible worst-case scenario includes those monies as well for reasons noted in one of my posts. The exposure is practically limited, however, to CEA/EVF’s total asset value in bankruptcy/insolvency. Latest public data I saw, while dated, suggests that total assets were ~ $44MM between the UK org and its wholly-owned US subsidiary.
In a different comment, I suggested that perhaps other legally-safe organizations should start collecting and retaining custody of monies people want to donate to EA Funds. I am aware of those Funds’ importance ; that’s why I suggested it might be necessary to move incoming cash somewhere we could be confident the Funds will achieve their intended purposes with incoming cash. I’m sure an FTX Creditor Recovery Fund can be set up for those who actually want their money to go there.
If you want to give money to a charity that is headed toward insolvency/bankruptcy, you do it after the bankruptcy filing.
--
As far as the reasons to talk about the worst-case scenario as a possibility despite that causing anxiety:
EA Funds alone typically takes in several million in December due to the end of the tax year. In addition to concerns about flushing that money down the toilet (as discussed above), there are going to be a lot of furious, betrayed donors if it turns out that happened (especially if the risk was known by mid to late November and not promptly communicated to would-be donors).
If there is going to be either a massive bailout or a bankruptcy, that is likely to affect people in various ways, and those people need time to brace for impact. Even if UBMO comes to the rescue, the situation is likely to adjust its bar for funding of other projects.
If there is risk, it is possible for CEA to take at least some action here without exposing any information. One obvious low-hanging fruit: announce that the EA Fund in global health/development is closing to new donations, effective immediately, because it is duplicative of GiveWell All Grants. That action and explanation would leak no real information that hasn’t been leaked by pausing EAIF for several weeks without explanation, and potentially keeps millions in December donations in safer hands.
My hope was that CEA/EVF might respond to the original post and/or my comment with actual substantive information that reassured would-be donors and other stakeholders. For example, “we are confident based on legal advice the EA Funds are restricted funds protected from CEA/EVF’s general creditors under UK and US law” would be significantly reassuring.
Finally, I noted in my comments that I am making pessimistic assumptions without any inside knowledge, and why I was doing that. So people can assess those assumptions, conduct their own research and analysis, and update accordingly.
(For onlookers, I think the above comment is a valuable warning but is still pessimistic and speculative.)
Thank you for your incredibly detailed and expert perspective here. This seems very valuable.
On the other hand, we are assuming UBMO is willing and have enough slack to come for the rescue. That may be untrue if the heads of UBMO are particularly disappointed, or momentarily without liquidity (because of tech stocks etc.). in the latter case, nobody would broadcast there’s a problem, because it’d only make things worse, and soon it’d all be over.
My guess is that the main reason you are not seeing a lot of communication is that there is not a major problem.
However, if there was a problem, I think the EA institution cannot simply quickly backfill 8 figures of funding by making a formal legal promise, or by delivering a cash transfer in a week’s time.
If there was a plan to implement this backfilling, I think there are a lot of steps upstream to seeing messaging:
The ties mentioned above might create legal or risk management challenges.
The nature of the FTX collapse presents issues with clawbacks, and this has unique legal characteristics.
Separate from legal issues, this sort of commitment or backfilling has to be coordinated at the most senior levels, it probably involves meetings with the two boards, and other stakeholders.
How this could be communicated has to be considered (the Wytham Abbey purchase is going poorly)
There are other possibilities or side actions: CEA probably has other sources of funding, and it might prefer to use those to show diversity.
All of the above should take weeks of time under normal conditions: there’s a legal dependency, an executive/leadership dependency, and then a media/communications dependency. All of these processes are slow, must be done in “serial’, and this is occurring one of the busiest times possible.
CEA has continued its operations, including proactively distributing new funding guidelines in a way that suggests a disciplined, thoughtful rollout.