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 >>
To find potential advisors, it was most helpful to solicit referrals from peers. While some of these may not be a good fit with your size or budget, it is worth having a conversation with them as you may get new leads or learn about services you may wish to incorporate into the RFP.
It is also important to note that you may get a referral from a peer who had a good experience with a manager even though the advisor is not an SRI specialist. Depending on the premium your foundation places on SRI expertise and your own comfort level and knowledge of the SRI universe, this may be fine. In fact, in our case the advisor we selected was not an expert himself, but his firm had the resources to meet all of our fundamental needs.
—Pam Fujita-Yuhas and Zoe Rothchild, NW Fund For The Environment
When it comes to making impact investments, foundations of all sizes partner with consultants and financial advisors for a variety of reasons. Three common ones are to receive support for discrete needs, such as deal sourcing or portfolio monitoring; to augment existing capacity on a longer-term basis; and to use consultants’ and advisors’ imbedded capacity to implement a complex impact investing strategy.
Finding an advisor who will best address your foundation’s need starts with drafting a well-thought-out request for proposal (RFP). Here are some best practices:
Finalize your foundation’s impact investing policy and be clear about its desired asset allocation and impact objectives
This will help to zero in on the expertise you need, thus narrowing the list of potential advisors. Some foundations may seek a broader-based approach pursuing socially responsible investments (i.e., screened investments) while others want a more hands-on, targeted, and measured approach for impact, including impact investments across the asset spectrum.
Don’t reinvent the wheel
Connect with other foundations that have already conducted an RFP for a new investment manager or wealth advisor. Ask foundation peers for their opinions and experiences with specific firms and if they would be willing to share an RFP template as a starting point. (You can find sample RFPs from The Longbrake Family Foundation, NW Fund for the Environment, and others on the Mission Investors Exchange website.)
Know the thresholds
Some firms have minimum endowment size requirements. It is also important to be clear with advisors about what requirements or stipulations for your endowment are in your investment policy statement. For example, your endowment size could limit your pursuit of certain types of investments or require a minimum threshold for certain asset types (such as public equities) in order to attain a minimum level of diversification.
Conduct in-depth conversations with the short list
Once the RFP is sent out to the complete list of identified candidates, narrow it down to the top three or four firms for more in-depth conversations. As with any traditional RFP process, it is important to have detailed discussions about desired risk tolerance, the investment manager’s fee structure and costs associated with the firm’s services, and level of customer service and reporting.
Pay attention to how candid potential advisors are about possible limitations and the extent to which the relationship feels like a partnership. Before selecting an advisor, foundations need to consider how deeply and directly they want to be engaged with their advisors and factor their desired working relationship into their decision.
Treat the process as a learning opportunity
Reviewing responses to the RFP and having conversations with advisors can be a learning experience for both parties and a good way to get up to speed on best practices and the latest advances in the field.