Impact Investing | April 12, 2023

Four ways foundations and family offices can expand their mission-related investing

Roodgally Senatus
ImpactAlpha Editor

Roodgally Senatus

ImpactAlpha, April 12 — More foundations are stepping up to align their endowments with their philanthropic goals with “mission-related investments,” or MRIs. That’s shifting the narrative around the tradeoffs between impact and return.

Builders Initiative, the philanthropic arm of Lukas Walton’s family office Builders Vision, reached its goal of aligning 90% of its $1 billion endowment with its philanthropic initiative.

A new report from Builders Initiative and Boston-based impact nonprofit Social Finance includes strategies from 30 philanthropic and impact investing leaders managing collectively over $300 billion in assets. The report, “Breaking Barriers: A Practical Guide to Unlocking Foundation Endowments for Mission and Returns,” outlines actionable steps foundation and family office leaders can take to overcome barriers to MRI adoption. 

Structural barriers

More than two-thirds of interviewees indicated that the way foundations are inherently organized is a barrier to MRIs. More than half of interviewees also mentioned that a key obstacle to MRIs is how governing bodies view their role as fiduciaries.

Interviewees said legal and operational hurdles can make co-investing a challenge, as sharing technical expertise and due diligence could be considered investment advice. “Several indicated that simple non-reliance letters and nondisclosure agreements allow for the sharing of information,” the authors found.

Impact alpha

The portfolios suggest that well-planned mission-related investments perform consistently with the market and can be a source of alpha. Some stakeholders continue to insist that fiduciary duty requires maximizing financial returns above social and environmental impact.

“Often, the challenge for foundations in pursuing MRIs isn’t regulatory in nature — it’s the entrenched philosophical and operational hurdles of traditional investing that are hardest to overcome,” says Fran Seegul of the U.S. Impact Investing Alliance.

Ford Foundation reported last year that its mission-related investments had generated a compound annual return of 28% through 2021.

Policy incentives

The Urban Institute found that foundations could do more to advance racial equity and racial justice goals by investing endowment assets toward their missions. Federal policy could incentivize community-level outcomes and engagement in decision-making, the report found.

Most existing racial equity mission-related investments from foundations tend to focus on investing in fund managers of color.