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Economy Remix: Can Foundations Align Their Investments with Their Missions?

Welcome to the Remix. Thanks for joining our latest spin around the economy.

This column looks at the question of how and whether foundations can align their investments with their missions. For this article, I interviewed senior foundation leaders at the McKnight Foundation, Nathan Cummings Foundation, and Rockefeller Brothers Fund. Combined, these three foundations hold about $4.5 billion in assets. About five percent of their assets are distributed annually in grants—that works out to roughly $225 million. But what happens to the remaining $4.275 billion?

That money, of course, is invested—in stocks, bonds, private equity, and the like. Some of these investments, perhaps many of them, can conflict with the goals of grantees. The observation of this conflict is not new. But other than the rare renegade foundation—the Heron Foundation being the best known—efforts to align foundation investments with foundation missions were, until the last decade or so, exceptional.

In the early 2010s, though, a few larger foundations, including the three I focus on in this article, began to shift. Now, more than a decade in at some foundations, it is possible to take a long-term view and assess how well this shift is working.

The results? Two things are clear. One is that mission-aligned investment is possible while maintaining market-rate returns. To at least a certain extent, foundations practicing mission-aligned investment can have their financial return and their (positive) impact too, both by avoiding investments contrary to mission and by nudging other investors to follow their foundations’ lead in investing in areas aligned with their grant and investment goals. The other lesson, however, is that the focus on maintaining market-rate investment does serve as a real constraint on how impactful investment can be. It is, in short, an incremental strategy. That does not make it at all unimportant, but it does help explain what mission-aligned investing can and cannot achieve.

In the article, the foundation leaders that I speak with offer a ton of wisdom on how to achieve these incremental gains. Among their recommendations: build your coalition, break down barriers between investment and granting arms, invest in smaller funds, be open to experimentation and learning, and tweak investment rules so the foundation seeks a market-rate, but not maximum return. And build your vision and strategy over time.

As you read this article, I encourage you to reflect on how the examples provided by these three foundations can be made more the norm in philanthropy. And to consider what we can and cannot expect mission-aligned investing to achieve.

Until the next Remix column, I remain

Your Remix Man:

Steve Dubb

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