How can investment advisers help foundations make sustainable and impact investments? There are great expectations that endowed foundations will act as the catalytic investors to ‘prime the pump’. In the hope that we could raise the profile of current practitioners and help to unlock far greater capital flows into the sector, Bridges Ventures asked me, as the first participant on their Bridges Fellowship Programme, to research the role of investment advisers in building the sustainable and impact investment market. Although my research included the broad spectrum of asset owners, this article focuses primarily on foundations.
As investors, foundations appear uniquely positioned to be ‘first movers’: they have access to high risk capital (grantmaking budgets) and large investment portfolios with long time horizons, and their fundamental purpose is to achieve a social or environmental mission.
Much influential leadership in building the sector has come from the US foundation community. Likewise, some UK and European foundations are blazing trails, captured in an excellent report by the Mistra Foundation (2011) and seen in the capacity-building efforts of a cadre of UK foundations.
Nevertheless, interviews suggest slow progress towards redeploying the ‘corpus’ – the combined endowment capital and annual income – of charitable foundations into mission-related (MRI) and programme-related (PRI) portfolios. There is either insufficient confidence among trustees that these approaches will achieve the foundation’s goals as effectively as traditional investing or grantmaking, or insufficient infrastructure to help them make a meaningful shift. The structure of boards of trustees, usually voluntarily giving their time, can foster conservativism. Further, those to whom they normally turn for advice often do not themselves know the sustainable and impact investment market.