Ten years after the Rockefeller Foundation coined the term “impact investing,” it has become a $250 billion market and an expanding global movement. Today, foundations across the U.S. and globally are increasingly looking to use their endowments to achieve social or environmental goals.
The 82-year-old Ford Foundation in New York City and the 32-year-old Sasakawa Peace Foundation in Tokyo are among those that are aiming to attract a higher number of private investors to the impact investing space. They are using de-risking strategies that help provide safety nets for investors, and tapping publicity-shy family offices in Japan, among other approaches.
Roy Swan, director of mission investments at The Ford Foundation, made the case that impact investors could have greater certainty of returns than others that are purely profit-oriented. A sovereign wealth fund might find that it cannot guarantee a 25% return on investments in market-rate housing in the event of an economic downturn, he said. By contrast, investing in affordable housing with a lower target of an 8% return might make more sense.
“There is a shortage of affordable housing in [times of both] very strong markets and in very weak markets,” Swan said. “In fact, during weak markets the shortage becomes greater because more people will need affordable housing due to the unfortunate consequences of economic downturns. There is a lot of predictability about that 8% return and very low volatility with affordable housing investments.” Such logic might persuade, say, a sovereign wealth fund, to invest in affordable housing or blend it into its overall investment portfolio, he added.
Christine Looney, who works with Swan at The Ford Foundation as deputy director of mission investments, traced the foundation’s impact investing work to the late 60s, when it launched a new tool called “program-related investments,” or PRIs, to use its endowment funds to achieve social goals. Through PRIs, the foundation could offer grants, low-interest loans, and equity investments “to catalyze social impact” in its chosen areas that included urban development, homeownership and microfinance.
“It was important for us to look at all of our assets, including the endowment, as part of our efforts to contribute to reducing inequality.”–Christine Looney
The Sasakawa Peace Foundation, or SPF, is exploring innovative financing mechanisms to encourage the private sector to invest in its projects, especially those focused on women, said Mari Kogiso, director of gender innovation. Studies the foundation conducted around gender issues found that women in Asia face several hurdles in gaining employment, “especially unconscious bias,” she noted.
Those insights propelled the SPF to set up an investment fund to help women access capital to start their own businesses or to expand them. It recently created its Asian Women Impact Fund, which plans to invest up to $100 million to support women and female entrepreneurs in Southeast Asia.
Swan, Looney and Kogiso shared insights about impact investing with Knowledge@Wharton for its podcast series “From Back Street to Wall Street.” The series is being produced in partnership with Impact Investment Exchange (IIX), a Singapore-based organization that serves as a bridge between investors and development goals in Asia. (Listen to this episode using the player at the top of this page. You can find links to the other episodes in the series here.)
Roots in Social Causes
The Ford Foundation was set up in 1936 with a $25,000 gift from Henry Ford’s son, Edsel Ford. Its goals are “to reduce poverty and injustice, strengthen democratic values, promote international cooperation, and advance human achievement.” According to its latest financial snapshot, the foundation’s endowment has an estimated market value of more than $13 billion. The endowment generated “risk-adjusted returns” of 7% in 2016, and annualized returns of 9.2% over the five years ending Dec. 31, 2016. The foundation stated that it has “an equity bias to achieve high rates of return, favoring value-oriented investment strategies, and a diversified portfolio with a moderate level of risk.”