As I mentioned in my post from Day 2 of the Council of Foundations’ annual conference in San Francisco, while foundation staff were packing rooms to talk about deploying some of their capital into impact investing, the heavy hitters of finance were gathering at the Milken Institute Global Conference to talk about impact investing. Jean Case, of the Case Foundation, writes about the growing commitments to impact investing from the finance world in this post at Forbes. The fact that Jean Case is at the Milken Institute, and not at the Council on Foundations, to talk about impact investing suggests that the most interesting question to ask about the state of impact investment is: ‘Are foundations already irrelevant?’

Now the fact is that Blackrock and Bain Capital probably have a very different definition of ‘impact investing’ than some foundations. Those finance behemoths are certainly not going to spend their time finding small start-ups employing or serving marginalized communities – at least not ones that don’t have a reasonable chance of scaling to tens of thousands of employees and millions of customers. But I do imagine that a certain amount of capital deployed by the financiers is going to end up with CDFIs or other forms of ‘safe’ and easily accessible impact investing opportunities. Which means that the possibilities for a bubble are all the greater.

But it also means that there could be a niche where foundations, even small and mid-size ones, can be relevant. But as I noted in Day 1’s notes, that’s going to require foundations to take a lot more risk in impact investing than it seems they are willing to right now. Of course, if foundations aren’t willing to take on risk in search of social benefit, why do they exist? As someone pointed out in one of the sessions, the riskiest ‘impact investments’ foundations will ever make are grants: the ‘default’ rate on grants is 100 per cent.

A vital part of the conversation about foundations’ participation in impact investing which I did not hear anything about at this year’s conference is what I call ‘financing is fate’. The impact investing community, particularly that part of the community with a philanthropic background, does not seem to be paying enough attention to basic corporate finance theory. This isn’t about derivatives or options valuation; it’s about how the form which financing takes has a huge impact on the behaviour of the recipient. Debt drives different behaviour on the part of firms than equity. All forms of equity are not equal. The last investor often has more power than the first investor. How an impact investment is made will have a massive impact on ultimate outcomes – that’s what I mean by ‘financing is fate’.

Here’s hoping we’ll hear a lot more about those issues in the coming year.

Timothy Ogden is executive partner of Sona Partners and a contributing editor to Alliance. Email timothy.ogden@sonapartners.com