Ford Foundation hopes to spur impact investment with $1 billion commitment

The Ford Foundation’s recent decision to commit $1 billion of its $12 billion endowment to impact investments was years, even decades, in the making. The move represents the foundation’s long-honed belief that impact investing can build social change. It is also an intentional “signal to other foundation and institutional investors” that now is the time for mission-related investment, the foundation said. “When you ask me how do you come to this [decision], the roots are quite deep,” Xavier de Souza Briggs, the vice president of the Ford Foundation's Economic Opportunity and Markets program, told Devex. “It begins with trying to solve some tough problems in which the private sector and private capital necessarily play an important role and looking for more flexible ways to stimulate that role.” The foundation will start with an initial investment focus on financial inclusion in emerging markets and affordable housing in the U.S. — areas that are both priorities for the foundation and offer investable opportunities, fund managers and promising deal flow. Over time as the foundation builds the amount of funds it invests in this way, it will consider about adding additional sectors and make judgements about investment size, among other factors. All of the funds will be deployed through fund managers and the foundation will not be making direct investments into companies or real estate. And while not driven by profit for its own sake, “we don’t aspire to concessionary returns,” Briggs said. “What we're going to seek is the most attractive financial returns we can subject to a serious test of social impact.” The foundation isn’t shy about the fact that they hope that others will follow suit. “We have named as the twin aspirations for this effort both creating and managing a really strong portfolio, that's one level, but influencing the field and accelerating the development of the marketplace, that's goal number two. A second level aspiration," Briggs said. Deep roots The Ford Foundation first started to see the importance of private capital — and some of the limitations of the grant-only model — a half-century ago. Program teams in the 1950s and 1960s were looking for ways to deploy support in other ways and sought federal government permission to make investments, such as loans, equity investments or provide credit enhancements. The result became the foundation’s program related investments portfolio, which has invested about $670 million in the past 50 years. Last week’s announcement was in part an outgrowth of those effort. Discussions about greater impact investment began more seriously when Darren Walker became president of the foundation in 2013. He, along with his team, including Briggs, started to think about “how to put the fullest range of assets on behalf of the mission.” They began a series of conversations with trustees, internal teams, outside leaders and investors in order to better understand the opportunities and challenges as well as to test some of the foundation’s assumptions. The team then went to the board and got the go ahead to present a plan with details about safeguards, oversight and what the financial risk would be for the foundation. “Typically for institutions like foundations that have an endowment and then they do their program work from a portion of the earnings on the endowment this has been a real wall for a long time,” Briggs said. “So to be able to cross that threshold and outline for trustees what it would look like to put endowment assets directly toward mission in a careful responsible way — that’s a big step.” When the board decided to make the commitment, it rewrote the foundation’s investment policy statement to carve out a mandate for mission related investments and provide clear guidelines and rules, including how the investments differed from the main endowment. Next steps The Ford Foundation now plans to build out its team. It is hiring a portfolio manager to help lead the work and will initially focus on private markets, both real estate and enterprises. “We thought about the value of emphasizing very strong alignment with our overall emphasis on combating inequality and some types of investments line up better than others with that,” he said. The foundation has also established a board committee that will look specifically after impact investment work and look at the portfolio on a regular basis. The full board, which ultimately has the responsibility for the investments, will also be involved in the oversight. They will make decisions about foundation spending annually, including on the pace with which impact funds are invested. In addition to the investments themselves, the foundation’s moves are intended to influence other philanthropic organizations as well as pension funds, sovereign wealth funds and high net worth individuals. Briggs said all these players could look at investing more of their funds in ways that align with their mission or values, he said. “Wading in the water is not so scary” and it is possible to both make a return and do good with one’s investments, Briggs said. Organizations should understand that these investments can be done in a way that is consistent with fiduciary duty and has an impact. The biggest first step, Briggs said, is the interest to explore the opportunities. Step two involves turning to the infrastructure organizations, roundtable groups and investors who are sharing best practices. “It is incredibly powerful when it’s not just Ford or another few, but these broader sets of institutions speaking in some kind of collective voice to say if you offer more, we want to do more,” he said. 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