How Philanthropic capital Can Better Align Their Investment Dollars with Their Philanthropic Mission to Drive Better Outcomes
I get up every day with one priority in mind – to use the tools of finance to make the world work better for its 7.8 billion inhabitants in ways that complement our environment and build our social fabric – rather than work at their expense. With persistent global threats like climate change, poverty, healthcare, social justice and education (to name a few!), it’s clear that we need real systems change to drive the capital we need to address these solutions at scale. While we will need to unleash the $186T of assets[1] in the global capital markets to achieve full systems change, philanthropic organizations have an important role to play in addressing these problems, too. Yet less than 1% are actually bringing their full financial resources to bear on these global challenges.
In fact, while total annual philanthropic grant capital stands at about $410-$430m[2], private foundations have approximately $1T in their investment endowments that they are not using in ways that advance the missions of their organizations. This can and must change if we are going to have a system that works for EVERYONE.
I recently had the privilege of speaking on a Barron’s Live podcast with Teresa Younger, CEO of the Ms. Foundation (full disclosure – a client of our firm) on the topic of Investing in Women, Girls and Racial Equity to talk about how philanthropic organizations like Ms. can align their investments to advance their mission. I believe the Ms. Foundation’s work to do this can serve as a blueprint for others. Here are some of the takeaways from our conversation:
Start the Conversation
There’s a lot that goes into a foundation’s decision to become 100% mission aligned and realign the corpus of its endowment fully with its granting mission. To start, you need a board and leadership team that asks the right questions and is willing to hear the answers. This is critical.
For the Ms. Foundation, the country’s oldest public women’s foundation whose mission is to drive capital and opportunities to women and girls of color, the process started out with Teresa’s asking a simple question: what would it look like if the organization was entirely aligned in its mission? This led to more questions. Other words, how can Ms. be intentional about everything they do – from personnel policies to its investments – so that all of the organization’s efforts were focused on optimizing outcomes for women and girls?
At Ms., the board was fully receptive to engaging in this process and hearing the answers. At this point we recommend that foundations then engage in a three-step process:
1. Foundations should work with their financial advisor to educate them on the issues they really care so the advisor can develop a customized strategy to implement that mission.
2. Your advisor should then come back to you with investment options that include ideas, innovations and things that can drive your mission.
3. Since success is just as much about delivering investment outcomes that meet your portfolio objectives in addition to your impact outcomes, you need an advisor with strong investment acumen. We always recommend a diverse portfolio that includes a range of asset classes that combine different risk / return assumptions with impact goals that fits your needs.
Asking the hard questions
Given the mission of Ms., to get to 100% alignment, you have to ask the hard questions. It means looking for fund managers and all investment options with a gender and racial lens, and investing in businesses of this ilk – so that diversity and inclusion is built into the investment process every step of the way. What’s more, there are lots of unconscious biases that persist about how these investments are somehow riskier or underperform. This is a myth. Look hard at the data so we can give women and people of color a fair shot.
Finally, there are often elements of a foundation’s portfolio that are in conflict with its stated mission. At Ms. this meant examining what their investment portfolio was actually doing to close the gaps that exist for women and girls and what it was doing to build income and wealth for people of color in the US and globally.
Today, Ms. is leaning into safety, health, and economic-justice strategies within its portfolio across public and private markets that address the complexity of issues that can advance their mission.
Only 2% of venture capital investment goes to businesses run by women, and an even smaller amount – less than 0.5% to people of color. And the numbers on the granting side are just as poor, with only 2% of philanthropic dollars going to women and girls of color. So we need every dollar to achieve change. I urge all foundations to ask themselves the question that Ms. Foundation asked – what would it look like if they aligned all of their capital with their mission. We have no time to lose and we need all of us to transform the systems.
[1] Investment Company Fact Book 2018
[2] Giving USA 2018