When Darren Walker joined the Ford Foundation as president in 2013, he did so with the intention of shaking things up. One initiative he began to push for early in his term was for the foundation to use more of its endowment dollars to help the causes it supports.
Today, after much debate and discussion among its board and staff, the Ford Foundation is announcing it will do just that. The New Yorkbased foundation, which was established in 1936 by Edsel Ford and is among the largest in the U.S. , has announced it will commit $1 billion of its $12 billion in assets to so-called impact investing, or investments that focus on generating an economic return while also making a strong environmental or social impact.
At the Ford Foundation we have always believed that the capital markets can and should be a part of solving the worlds largest problems, said Walker on a teleconference announcing the initiative. Increasingly, market leaders are exploring ways to enable markets to contribute to social returns. Market leaders like Larry Fink at BlackRock and Andy Sieg at Merrill Lynch are noting that their clients are increasingly demanding impact investment products.
Fords move will undoubtedly be heralded as a bold innovation by some. For impact investing skeptics, however, its prospects for success are far from clear. By law, foundations must spend a minimum of 5 percent of their assets a year to retain their not-for-profit status. The question of what the other 95 percent of a foundations assets does has long been a source of tension in the foundation community.
Investment offices argue that they are supporting the foundations mission in the best way possible, by making money in a prudent, risk-adjusted fashion. Activists and philanthropists counter that foundations should not be supporting issues and causes with their investment dollars that they oppose with their philanthropic efforts, and that they could be a lot more effective in their missions if they put more of their assets behind the effort. Enter impact investing.
$1 Billion in Ten Years
In an essay Walker published on the Ford Foundations web site in 2015, he wrote, I no longer find it defensible to say that our investment strategy is only to maximize the value of our endowment just as its no longer defensible for a corporation to say its only responsibility is to maximize shareholder value.
With todays announcement, Ford is making a bet that by directing $1 billion of the endowments assets to impact investing, it will not sacrifice returns and will also forward its mission. It is building up a separate impact team to manage this new allocation and has engaged a search firm to help recruit a director for the impact portfolio. Two members of the existing impact team at Ford, Christine Looney and Megan Thompson, will join the new effort. They and the new director will report to Xavier de Souza Briggs, head of the current mission-related investment (MRI) program rather than to the CIO, Eric Doppstadt, a longtime Ford employee. (The foundation currently makes impact investments out of its grant money.)
Ford plans is to implement this strategy over the next ten years. If successful, Walker would like to see the foundation invest assets more quickly, and in greater amounts, in line with its mission. The new strategy will start by investing in funds that are focused on two areas: housing and economic inclusion. These are core to the foundations mission but also are the areas in which the staff and board feel there are moneymaking opportunities.
Fossil Fuel Divestment
The foundation said in a statement that it maintains a healthy liquidity profile in its portfolio and that the trustees will approve a cap on new MRI commitments each year, given the foundations current investment performance and spending needs. We believe this is a responsible and appropriately flexible way to manage the deployment of capital into MRIs, the statement read.
What may be significant for the broader sustainable investment movement, however, is that the foundation is not making any changes to the rest of its investment approach. It has not, for example, committed to divest from fossil fuel companies something environmental activists have been pushing a number of the large foundations and other institutional investors to do. (Some of those activist groups have received funding from Ford.)
Many foundations are struggling with the challenges of integrating impact into their portfolios. Kristine Pelletier, senior consultant with NEPC and co-head of the Boston-based investment consultants 20-person impact investing committee, says that a high-profile commitment from a large foundation like Ford could help other foundations move forward.
This validates the demand that the investment management industry has been hearing for so-called impact investment and that, in turn, encourages asset mangers to develop more funds, she says.