Industry Trends & Research

Diversifying Private Foundation Oversight Provides a Path to Better Mission Alignment


By law, most private foundations are required to distribute at least 5% of the value of their investment assets to grants and grant-related expenses. The other 95% typically lives in a long-term portfolio, to be invested wherever it makes financial sense to grow and sustain assets.

As investors concerned with environmental, social, and governance (ESG) issues move some or all of those assets into mission-aligned investments, a diverse array of perspectives from an investment advisor and other voices influence just how far that impact goes. Against a backdrop of heightened awareness concerning racial equity and social justice issues in the wake of the death of George Floyd, many foundations are increasing their efforts to bring more diverse viewpoints to the table.

Clearing Away Common Misconceptions

The process of pinpointing who should be involved in the conversation brings many foundations face to face with common misconceptions that can impede progress. Probably the most widely held is that grantmaking and investment-making teams should be separate entities. That viewpoint positions the latter group to focus on investment decisions with little to no input from grantmaking staff.

In practice, the two groups can successfully work together to maximize impact and even enhance each other’s contributions. In 2001, the F.B. Heron Foundation began moving all of its endowment assets into mission-aligned investments while still aiming to achieve a positive financial return. The foundation’s grant and endowment teams united to source, evaluate, and manage everything from grants to private equity investments.

Another misconception claims that fiduciary duty should prevent investment committees from aligning endowment investments with mission or impact, as such a move could threaten returns. However, considerable research shows that sustainable funds can yield financial returns in line with their conventional peers. For example, the Annual Impact Investor Survey 2020 from the Global Impact Investing Network found that impact investments across asset classes in private markets have generated strong realized returns over time. A 2019 study from Morningstar found sustainable funds had outperformed their traditional counterparts.

Foundations embracing impact investing can lean on existing relationships.

Who Deserves a Seat at the Table?

Clarifying the nature of the foundation’s oversight team helps refine its makeup, whether to rely solely on outsourced experts or to begin building an in-house team. Organizations that are just at the beginning of the journey or that have few resources tend to rely more heavily on outsiders and bring more oversight expertise in-house over time.

Foundations may bring a variety of participants into decision-making, including:

Investment Advisors and Consultants

Boards with little mission-aligned investing experience in particular often lean heavily on a knowledgeable investment advisor to provide counsel on issues as diverse as deal sourcing and financial due diligence. Foundations may also consider collaborating with an advisory firm able to look across asset classes, as opposed to those who only address one piece of the portfolio.

Organizations that already have an investment advisor in place may also hire a consultant with complementary skills and expertise. Efforts such as program-related investments (PRIs) and mission-related investments (MRIs) that target impact might involve a financial advisor with expertise in ESG and impact investing, as well as another consultant with the experience to source and structure PRIs and MRIs.

Typically, investment advisors have discretion to proactively handle tasks such as fund manager review, selection, and oversight, due diligence services, portfolio analysis, and monitoring. On the other hand, strategic consultants more often help with areas such as market research and analysis as well as impact management and measurement.

Program, Legal, and Technical Staff

Programming staff have special insight into a foundation’s grant money as well as how their mission can align with investments. This is especially true for foundations targeting racial and social impact, as investing goals are likely to become entwined with the program’s goals. Program staff may also have a deeper understanding of certain issues through their relationships with community members.

Foundations embracing impact investing can lean on other existing relationships, as well. Lawyers and other technical experts who work with the organization can not only address legal matters but also help structure and monitor investments.

Diverse Decision-Makers

Making positive social change through impact investing requires diverse perspectives, from gender and racial diversity among board and investment committees to leadership of advisors and asset managers. Organizations such as the Ford Foundation have made efforts to prioritize diverse investment decision-makers as an intrinsic part of their impact investing strategy. Family foundation boards typically lack diversity among their members, a gap that potentially can weaken the ability to make innovative, inclusive decisions.

Diversity does not become a reality without support. According to Jessie Smith Noyes Foundation finance committee Chair Lenora Suki, just a quarter of the 34 firms that submitted letters of interest when the organization recently looked for impact funds were led by women. Only four were minority-led.

“Many firms that claim expertise in impact investments that advance gender and racial equality lack diversity in their own leadership,” Suki pointed out in an Omidyar Network report.

Putting more diverse perspectives, skills, and experiences behind investments helps to guide their direction and ultimately strengthen foundations’ impact.


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