Something Old, Something New…

Part Two of Three Parts

Cover art from National Committee for Responsive Philanthropy (NCRP), Criteria for Philanthropy at Its Best (2009)*

The TakeAway: Organized philanthropy wakes up to new opportunities for connecting their grantmaking ideals to their investments, thereby addressing problems more comprehensively

Earlier this week, a group of foundation presidents, treasurers, and trustees – representing 78 foundations – gathered in Cambridge, Massachusetts, to explore how they might use their portfolio assets with greater effectiveness, consistent with their charitable purpose.  More for Mission, a project of the Initiative for Responsible Investment at Harvard’s Kennedy School of Government, served as host.

The latest in a series of decades-long efforts to persuade endowments that they could harmonize their investment and grantmaking policies, the event was important for three reasons.

  • It lends further legitimacy to a fast-growing field;
  • It expands and reinforces a fiduciary ethic that incorporates broader considerations of charitable purpose, while restoring greater responsibility to boards of directors whose obligations often have migrated to intermediary consultants; and
  • It enables direct investment in job creation and revitalization activities that have a ripple effect on distressed communities.

Today and tomorrow, we’ll examine some highlights of the day-long discussion.  Because this is a “marriage” of sorts – between the investment and grantmaking sides of foundation operations, traditionally separated by a firewall – we’ll use the old wedding saying (slightly modified) as a framework:  Something old, something new, something borrowed, something green.

Something Old  | “I’ve been waiting 22 years for this day,” said Geeta Aiyer, Founder and President of Boston Common Asset Management, as she began her remarks on the “Delivering Returns – Perceptions and Reality” panel.  Other speakers echoed this sentiment, referring to their own experience in fields that now converge under the umbrella of mission investing:  socially responsible investing, program related investments (PRIs), community economic development, worker-owned enterprises, and other forms of place-based targeted investing.  Though in earlier times most people viewed social screens, selective investment, and shareholder engagement as novelties, some found the goal of community-based economic development more familiar and therefore compatible with asset allocation principles.

Nowadays, largely due to the success of these ventures, many more institutional investors in various categories combine financial rigor and discipline with their program goals and aspirations in areas such as affordable housing, environmental sustainability, health and education, and poverty alleviation.  Endowments lag behind on the sustainable investing and shareholder activism fronts, but are awakening to the wisdom of these financial tools within an austere environment of declining endowments and limited resources.  Taken together, they steadily steer a grantmaker’s corpus (the principal or endowment assets) toward the charitable purpose or mission for which the foundation exists.  At present, relatively few foundations invest a portion of their endowments in vehicles that support their mission.  Last year More for Mission conducted a survey of foundations practices, and learned that respondents allocate roughly 7 percent of portfolio assets to these vehicles, achieving returns that are either deliberately below-market and or at market rate.  Many participants anticipate a steady increase in this percentage.

Something New  | While rooted in financial innovations going back 40 years, mission investing offers a new way of interpreting the fiduciary role without sacrificing its core meaning.  The issues that matter to foundations – the economic crisis, poverty, health, education, climate change, international affairs, science and technology, arts and culture – can be tackled through prudent investing and greater fiduciary oversight.  The proliferation of new investment products and services, along with growing demand by diverse grantmakers to use them, drive the need to reexamine the regulatory and policy framework that governs endowment decision making.  As barriers to entry fall – enabling investments committed to social and environmental purposes to rise – and foundations come under greater scrutiny, so, too, must the financial orthodoxy preventing consideration of these tools that advance charitable purpose—and the public interest.

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Image from National Committee for Responsive Philanthropy, Criteria for Philanthropy at Its Best (2009)

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