A second look at the Ford Foundation’s big shift toward impact investing (podcast)

Ford Foundation president Darren Walker broke through a barrier of sorts recently with the announcement the foundation would commit $1 billion from its roughly $12 billion endowment to so-called mission-related investments (see, “Ford Foundation to tap endowment for $1 billion to fight injustice and inequality“).

That it would make news that a foundation, especially one like the Ford Foundation with its long history of groundbreaking philanthropy, is committing capital toward its mission of social justice and economic inclusion, tells you something about the state of U.S. philanthropy.

In the latest Returns on Investment podcast, our roundtable explores just how significant Ford’s announcement really was. Will it help unlock many more billions for high-impact investments? Will it change how foundations think about deploying their capital? Can it help change the structure of the financial markets themselves?

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There might be less to the Ford announcement than first met the eye, argues Imogen Rose-Smith, senior writer at Institutional Investor magazine. The new fund will report to the foundation’s program side, rather than its investment managers, meaning considerations like “mission” and “impact” haven’t really taken hold among the traditional investment managers who still control the bulk of Ford’s endowment. Perhaps all Darren Walker did was wrestle an additional $100 million a year ($1 billion over 10 years), to top up Ford’s annual grantmaking of more than $500 million.

David Bank, editor of ImpactAlpha, tipped his hat to Walker, who fought a major battle with the foundation’s own trustees, to even get this far (listen to our podcast from last June, “Are Foundations Ready to Get Off Their Assets?”). For decades, philanthropy has been stuck in a rut, with only 5 percent of philanthropic endowments paid out in charitable grants each year, while 95 percent of the (tax-advantaged) capital is invested for maximum returns with little regard for impact

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Now, Walker’s team at Ford has a chance to prove not that impact investments can generate market-rate (or even market-beating) returns, but that investments can generate outsize impact itself, by growing market-based models that can scale up and make real progress on affordable housing in the U.S. and inclusive prosperity in emerging growth markets and other Ford priorities.

That kind of effectiveness – toward impact itself – is the real proof point philanthropy needs to bring more mission-driven capital to bear on critical challenges. Newly minted and old-guard billionaires and others who see they can make outsized impact with mission-driven investments will commit more (tax-deductible) dollars and grow philanthropy far faster than cautious asset-managers ever could.

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