In 2015, Exponent Philanthropy and partners Mission Investors Exchange and Arabella Advisors released Essentials of Impact Investing: A Guide for Small-Staffed Foundations. This post is adapted from the complimentary and actionable guide, geared to foundations with few or no staff that want to align their investments and missions. Download Essentials of Impact Investing: A Guide for Small-Staffed Foundations >>
By Peter Berliner, Mission Investors Exchange
To successfully develop an impact investing strategy, a foundation must consider its capacity needs, as additional resources may be required.
How much capacity a foundation needs will depend on how it designs its impact investing strategy. It may need added expertise to obtain deeper knowledge of specific issues, communities, and investment opportunities. Or it may require technical assistance to address legal and financial questions, as well as to structure, underwrite, and monitor investments.
Not every foundation will have all these resources in-house, but you can still access the tools, people, and expertise needed to successfully invest for impact. In our experience, both staffed and unstaffed foundations have been able to develop impact investing portfolios.
Needs may be met internally through trustees, external advisors, or staff. Alternatively, foundations may choose to partner with a peer foundation that has greater capacity to execute investments.
- Wealth advisors and family offices. Speak with your wealth advisor or family office about its capacity for impact investing. Will your wealth advisor or family office be able to help you develop a strategy or coordinate work with consultants? What is their level of comfort with conducting financial due diligence on these types of transactions? Do they have capacity for ongoing monitoring of these transactions?
- Networks and other organizations. Investor-driven groups such as Toniic, the GIIN, Mission Investors Exchange, CREO, Confluence Philanthropy, and others can provide information, assistance, and referrals to potential consultants and service providers. They also may be able to link you to sector-specific working groups and opportunities for collaboration or co-investing.
- Intermediary organizations or investment funds or pools. Depending on your area of interest, working directly with intermediary organizations including CDFIs, investment funds, or investment pools, such as Investors’ Circle or Slow Money, in which like-minded investors have agreed to combine resources and invest as a group, can be efficient ways of making impact investments.
- Consultants. Foundations can bring on consultants to augment short- or long-term capacity needs; help to assess the landscape; develop and refine strategies; source investments that align with your strategies; conduct social and financial due diligence; structure, close, and monitor investments; and evaluate the impact of your portfolio.
Partnering With Larger Foundations
Our foundation began impact investing with a lot of passion but not a lot of direct experience, so we knew had a great deal to learn. Ultimately, we were hungry to learn alongside mission-aligned, like-minded people doing the actual work in the field. We found working with larger-staffed foundations that have dedicated mission-related investing staff has been one of the more effective ways we’ve learned about this important work.
We’ve built meaningful relationships with staff members who focus on impact investing in larger organizations, which has given us access to important discussions about strategy and long-term impact that otherwise we might not have had. For example, last year the Kellogg Foundation’s mission-driven investing team invited us to an internal learning session with Social Finance US; we were able to share the notes from the session with other small-staffed foundation colleagues.
We’ve also learned by co-investing. One of our first co-investments was with our long-term partners at the Kresge Foundation in a fund focused on housing in downtown Detroit, the Woodward Corridor Investment Fund.
Partnering with other foundations allowed us to quickly learn and be more efficient with our investments.
— Doug Bitonti Stewart, Max M. and Marjorie S. Fisher Foundation