Todd J. Cohen
A leading environmentalist, former Vice President Al Gore, said that holding "a ‘feel-good' investment may appeal to the heart, but it's of no real use if it doesn't produce a healthy financial return."
The investment behavior of U.S. foundations appears to reflect his comments.
Over the past five years, market-rate, mission-based investments made by foundations have grown three times faster than the below-market segment.
Not surprisingly, during the same time, options available for foundations to engage in market-rate mission-based investing have increased as well.
What took so long?
From my first-hand experience, many foundation board members shudder when they hear a term like "mission-based investing" because they assume it is synonymous with socially responsible investing. Or they believe there is a tradeoff between social return and financial objectives.
To clarify, mission-based investing is the practice of using financial investments to achieve a specific mission and recover the investment principal or earn financial return, or both.
The category can be broken down into market-rate and below market-rate mission investments.
In general, asset classes for market-rate mission investments include bonds; loans or loan guarantees; private equity and venture capital; and
certificates of deposit in community-development financial institutions.
Foundations can take advantage of these investments through intermediary such as a loan fund, mutual fund, or community development financial institution.
They also can invest in private equity funds as limited partners, or they can engage money managers that specialize in assembling portfolios of market-rate, mission-based investments.
With more sophisticated options and more to choose from, more dollars are being invested.
Growth of mission-based assets has averaged 16.2 percent over the past five years, compared to less than 3 percent during the preceding 32 years.
Further, over the past decade, the number of foundations utilizing mission-based investing has doubled, and capital inflow invested on an annual basis has tripled.
And foundations are pleased with their experiences.
A 2006 report prepared for the Shell Foundation by FSG Social Impact Advisors found many investors' experiences with mission-based investments were better than expected, with few losses - and greater profitability and program impact - than first anticipated.
The study found no trade-off between financial returns and social impact.
"We have seen first-hand the powerful effects our assets can make, and we have enjoyed competitive returns," said Laura L. Mountcastle, a member of the board of trustees and treasurer of the Mary Reynolds Babcock Foundation in Winston-Salem, N.C.
What does this mean for your organization?
For starters, it means you can take positive steps toward advancing your mission in ways other than grant making and charity.
In fact, by applying a rigorous set of financial criteria, your organization can actually make money while advancing its mission.
Todd J. Cohen is president and chief investment officer of Community Capital Management in Weston, Fla.
- Professional Area: Fundraising/giving | Management/leadership