Baltimore, Md. – There’s a tendency for some hardcore finance types to look down their noses at philanthropic foundations. Soft-headed. Concessionary. Anti-business.
It may be time for a new view: Pioneering. Catalytic. Risk-taking. And in the nascent market for investments that generate financial returns through the creation of social and environmental benefits, perhaps essential. In the lexicon of philanthropy, ‘but for’ the emerging network of impact investing foundations, many deals and initiatives would not happen at all.
ImpactAlpha is in Baltimore this week for the Mission Investors Exchange conference, the annual gathering of foundation executives who are embracing a broader set of financial tools to drive their philanthropic missions. They are using investments, as well as grants, to unlock promising technologies, demonstrate new models, and make markets work better in pursuit of social, environmental and economic progress.
Impact investing is not yet widespread in the sometimes stodgy world of philanthropy. But put together, the new deals and commitments, wonky tools and trends, incremental policy changes and lessons from first movers signify real momentum. The theme of the conference: “Seizing the Momentum.”
ImpactAlpha Full Stack Capital has explored the ways foundation capital, generally in the form of “program-related investments” can help make deals work. By proving new models, reducing financial risks, increasing liquidity and, yes, boosting returns, foundations are crowding in mainstream capital. Such “additionality” is a key criteria for many foundations.
Along with our regular podcasts, and #Dealflow columns, Full Stack Capital is chronicling this new, invigorated approach to philanthropy.
Coming soon: A special section in the Stanford Social Innovation Review exploring how the Bill & Melinda Gates Foundation is using strategic investments to make markets work for the poor. ImpactAlpha partnered with Stanford’s Paul Brest to explore how the world’s largest foundation deploys its $1.5 billion mandate for program-related investments.
Here’s a sampling of what else is happening:
Funds, Deals, Commitments
Impact fund for Chicago. MacArthur, Calvert and Chicago Community Trust team up to launch Benefit Chicago, a $100 million local fund for social enterprises and non-profits. We look at all aspects of the new fund in our latest podcast.
New social investments in education. The Lumina Foundation announced its first set of impact investments, including those in Credly, BridgeEdU, and New Profit. Lumina’s social investment strategy will help advance the foundation’s goal to help the U.S. achieve Goal 2025, an initiative to increase the proportion of Americans with degrees, certificates and other high-quality credentials to 60 percent by the year 2025.
Innovation fund for U.S. cities. Living Cities brought together 10 foundations and financial institutions to launch its second fund, the $31 million Blended Capital Fund to test innovations to challenges facing U.S. cities.
Debt capital to scale solar “beyond the grid”. The Packard Foundation committed $15 million to Simpa Networks, SunFunder, and Off-Grid Electric, which finance access to clean energy “beyond the grid” in east Africa, India and other emerging markets.
Chan and Zuckerberg launch LLC to drive change. The young couple pledged to give away 99 percent of Zuck’s Facebook shares, now valued at over $45 billion, through a limited liability company, not a private foundation. We debated Chan and Zuckerberg’s bold bet on an “un-foundation” in a podcast.
Ford will make impact investments from its endowment. The nation’s second-largest private foundation will put forward a specific impact investing policy for its $12 billion endowment.
Kresge will invest $350 million by 2020 in social investments. Kresge’s social investments will align with its six program areas — arts & culture, education, environment, health, human services and community development in Detroit. In March, the foundation launched Kresge Community Finance, a standardized loan product through which it will deploy $30 million to CDFIs and DFAs.
IRS expands program-related investment example set. The regulations provide nine new examples of the kind of investments that qualify as PRIs, including disease research, the environment, smallholder agriculture and other areas.
IRS green lights mission-related investments. The new regulations mean that an investment in a for-profit enterprise creating jobs in low-income communities, for example, won’t be seen as irresponsibly putting the foundation’s financial needs at risk.
Department of Labor clarifies ERISA guidance. New guidance from the Department of Labor gives a green light to pension fund managers to consider environmental and social benefits in their investment decisions.
Research and Trends
Barriers to mission investing. The Center for High Impact Philanthropy at University of Pennsylvania released a new report that explores the barriers to PRI and MRI making at foundations. The report finds, “educating foundation leadership, building foundation staff expertise, improving data quality and lowering the cost of making a mission investment are all issues to understand and address.”
Pay-for-success in the U.S. The Nonprofit Finance Fund released a report on the first 10 U.S.-based pay-for-success project now underway. PFS projects to date have clustered around criminal justice and recidivism; early childhood education; and homelessness.
Measuring “quality” jobs. Pacific Community Ventures released a report on how CDFIs and other impact investors can define and measure quality jobs. “We need to move the conversation beyond measuring the quantity of jobs created to measuring the quality of those jobs,” said PCV InSight director and co-author of the report, Tom Woelfel.
Early-Stage impact investing for families. The ImPact released the next report in its series of “primers” for family offices. This one takes a deep dive into the “sexy” world of high risk, high reward, high impact early-stage impact investing. The ImPact has churned out a report a month since January, beginning with its Frameworks for Families. The ImPact also released primers on fixed income and public equity impact investing. Look out for its final two reports on real assets and later-stage private equity.
Smallholder farmer finance. The Initiative for Smallholder Finance and the Rural and Agricultural Finance Learning Lab released the follow up to report to Dalberg’s 2012 report on smallholder finance. The takeaway: Better designed products, more integrated partnerships and smarter applied subsidies have the potential to unlock a $170 billion investment opportunity in smallholder agriculture.
Foundations using VC tools to unlock education innovation. A round up of foundation investments in for-profit education technology companies highlights how philanthropy is embracing venture capital’s tools to drive results in schools. Edtech extra: Media company EdSurge has a new package on the state of edtech financing.
Opportunities at the frontier. The Omidyar Network released “Frontier Capital”, a report that details the prospects for both financial returns and outsized impact of investing in market-based solutions for low- and lower-middle income segments in frontier markets.
New platform to help investors “blend” capital for development. The new investor platform, Convergence, aims to reduce search costs, streamline due diligence, and overcome barriers to speed completion of blended finance deals.
New Metrics. The Global Impact Investment Newtork released the the fourth iteration of IRIS, the industry’s catalog of standardized impact metrics, adding of 72 new metrics, an new how to guide and a new footnoting function.
F.B. Heron Foundation. Heron’s president, Clara Miller, and vice president, Toni Johnson, shared some of what they’re learning on the road to mission-align 100 percent of its $300 million in assets by 2017. We sat down with Clara for a podcast.
Packard Foundation. Packard released a report, “Mission Investments at the Packard Foundation” to share what it’s learned from its $750 million in mission investments to improve the lives of children, enable the pursuit of science, advance reproductive health, and conserve and restore the earth’s natural systems.
Calvert Foundation. Beth Bafford, a Calvert Foundation investment director, highlights five challenges to investing alongside public and philanthropic investors.
Annie E. Casey Foundation. PCV Insight, with support from CASE at Duke University, released the first third-party evaluation of Annie E. Casey Foundation’s social investment program, a $125 million allocation from its endowment dedicated to mission investing.
Knight Foundation. Knight launched the Knight Enterprise Fund in 2011 to make mission-related investments with an allocation of $10 million from its endowment. The foundation released a report to share what it has learned during the fund’s first five years, including evidence of social impact and value added, and limited impact on its grantmaking strategy.
Got foundation impact investing news? Reach out to me at [email protected]