Are Foundations Ready to Get Off Their Assets? Endowments Have Become a Hot Topic (Podcast)

Mission-driven foundations should be the point of the spear when it comes to impact investing.

Here at ImpactAlpha, we've been tracking the growing number of foundations who are expanding their toolsets to include loans, equity and other investments in enterprises that can deliver impact – and return capital. (See, for example, our recent deep dive into the the strategic investment portfolio of the Bill & Melinda Gates Foundation.)

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In our latest podcast, we take a step back and consider whether the trend is moving fast enough. Whether the impact investing glass is half-full or half-empty was one of the themes of last month's Mission Investors Exchange conference in Baltimore, which gathered foundations large and small to share strategies for making positive social and environmental impact.

“This is no longer about preaching to new foundations and saying, ‘You should do this,'” says Brian Walsh, head of impact at the New York financial services firm Liquidnet. In the latest Returns on Investment podcast, Brian says, “Now the case has been made and enough critical mass of foundations don't need to be convinced. We are moving from ‘You should do this' to ‘Here's how to do it.'”

Listen to the latest Returns on Investment podcasts.

Titled “Seizing the Momentum,” the conference marked a turn from talk to action. As more foundations make program-related investments, or PRIs, and some even tiptoe into mission-related investments, or MRI's, they are looking for deals, strategies and intermediaries to help them be more effective. (Broadly speaking, PRIs come from the grantmaking side of foundations' budgets and count toward their minimum annual payouts. MRIs come from the much larger endowment side of the ledger.)

“If we believe that our old behaviors and our old ways of doing things will continue to make us impactful, then we’re kidding ourselves,” Darren Walker, who became president of the Ford Foundation in 2013, said at the opening plenary. Walker is shaking up Ford, and the rest of the field, with his call to invest more of the foundation's $12.4 billion endowment in “mission.” (We excerpt some of Walker's juiciest remarks in the podcast.)

The Chronicle of Philanthropy picked up (paywall) on Walker's remarks to note that few foundations are commiting their endowments (one early adopter is the F.B. Heron Foundation which has gone “all in for mission”; listen to our podcast interview with Heron's president Clara Miller.) That led to a rebuke from MIE president Matt Onek and board chair Stuart Comstock-Gay that the article had “missed the spirit and focus of the conference.”

“It is true that building an impact-investing strategy is hard work and often requires a shift in institutional culture,” the pair wrote in a letter to the editor. “It is clear from this gathering that mission investing is having a dynamic and growing impact in communities across the country. We’re seeing real results.”

Listen to the latest Returns on Investment podcasts.

In addition to Walsh, our Returns on Investment roundtable discussion features Imogen Rose-Smith of Institutional Investor and ImpactAlpha's own David Bank. Imogen, as is her wont, took more of the half-empty view.

“The problem is that the PRI guys and the investing guys aren’t talking to each other in the same institution – let alone anywhere else,” she says. “That capital rarely if ever is getting stacked up the way that it needs to get stacked so that it’s truly effective.”

Bank came away from the conference more impressed. More than 500 investors, asset managers, and foundation leaders gathered in Baltimore, a big leap from the original 25 people who gathered at the organization's first conference in 2002, also in Baltimore.

Even if all U.S. foundations pointed 100 percent of their $800 billion in total assets towards mission, it would make only a small dent in what's needed to deal with the environmental and social issues of the 21st century. The estimated costs of tackling the new Sustainable Development Goals, for example, top $3 trillion per year. Foundations, however, can provide the flexible, risk-tolerant, early-stage capital needed to catalyze the larger movement of private capital.

“Some of the leading foundations are being quite creative in stacking up capital,” David said. “They are taking a very aggressive, ambitious and innovative view of how to do this.”

Listen to the latest Returns on Investment podcasts.

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