How Did We Get Started?
Q: Why are we interested in sustainability, mission, and social investments?
A: For us, our values and ethics are integral to who we are and how we interface with the world. Therefore, constructing a “value/ethic firewall” between our personal and business lives is, for us, a false construct. Impact investments are a logical extension of our core beliefs.
Also, impact investments allow small family foundations like ours to maximize our impact by augmenting the annual payout requirements with the effects of an investment strategy which is aligned with the mission of our foundation.
Q: How did we get started?
A: We understood early on that our advisors values and ours had to be aligned. We learned that when our values did not align, the task at hand could not realize its full potential. We started to articulate what we were passionate about and if our advisors could not deliver, we moved on. We also made the strategic decision to hire a team of advisors, rather than rely on any one consultant or firm to provide full services. This approach brought together the best possible team members from multiple disciplines (e.g., family coach, family office manager, tax advisor, philanthropic advisor, investment advisor, etc.) to form a cohesive team. It also provided a built-in ‘checks and balance’ and fostered high engagement in the process.
The path to our current investment strategy began with negative screens. We first attempted using negative screens to inform investments in our foundation, but realized early on that this was difficult to achieve and the impact was impossible to measure. Negative screening took a back seat to financial performance. Communication with our investment advisor at the time was at an all time low as we realized that his attitude and our needs were at odds. Therefore we decided to change investment advisors.
Q: How did our strategy evolve over time?
A: While we began the process of looking for a new investment advisor, we also dove down deep into seminars and workshops aimed at developing our nascent understanding of philanthropy. As participants in The Philanthropic Workshop West in 2003-2004, we listened to Jed Emerson’s thoughts on blended value investments. Participation in the Global Philanthropy Forum further exposed us to international grant and investment opportunities.
In 2004, with our new investment advisor on board, and armed with a renewed passion for exploring ways to leverage our foundation, we turned the investment process on its head and made it our own. Our new advisor was as eager as we were, attending as many conferences as he could to tap into potential deal flow.
A key turning point in the process occurred when we merged our impact investment strategy with our asset allocation strategy and formalized the deal flow process. By integrating this into our investment process, there is no longer a “value/ethics firewall” between our foundation and its investments. By tracking this shift, we have seen that these investments can provide financial returns approximating the average risk adjusted returns of similar investments made without regard to sustainability, mission or social considerations.
So, in summary, having a team that is aligned with our values, integrating our impact investment strategy into our overall investment strategy and formalizing our deal flow process have all happily conspired to provide a sound basis for the thoughtful and purposeful growth of our impact investing commitment, thereby increasing our mission and program impact.
How Are We Structured?
Q: How do we organize for success?
A: Keeping it simple. Our process includes:
- Two foundation board meeting per year;
- Our Investment Advisor as an integral member of all board meetings;
- Devoting one third of the board meeting agenda to reviewing existing portfolio performance and discussion of impact investment pipeline;
- Quarterly portfolio and pipeline reviews with our investment advisor;
- A personal commitment of Foundation Directors, Investment Advisor, and Philanthropic Advisor to identify, investigate and share potential impact investments on an on-going basis; and
- Maintaining a small board and core team to enable quick decisions
Q: What are the roles and responsibilities of our team?
A: We are a couple managing our small family foundation without any full-time staff assistance. We believe in a virtual team approach and rely on a combination of our active involvement and our partners input to help us to achieve our foundations goals.
Foundation Directors are responsible for:
- Articulating and advocating the mission and programs of the foundation;
- Researching the market place for impact opportunities;
- Evaluating impact investments from a mission and program perspective;
- Providing overall philanthropic guidance;
- Researching the market place for impact opportunities and;
- Evaluating impact investments from a mission and program perspective.
Our Investment Advisor is responsible for:
- Researching the market place for impact opportunities with an emphasis on Mission Related Investments, Social Component and Sustainability Investments;
- Evaluating impact investments from a financial perspective; and
- Ensuring that proposed investments fit into the current asset allocation strategy.
What Are Our Recommendations For Getting Started?
Q: How to generate deal flow?
A: Some thoughts on finding deals:
- Know that your investment advisor is seeing impact investments all the time. You can help her bring these deals to you by holding her accountable to provide impact opportunities at your quarterly investment meetings.
- Make sure your investment advisor knows what your foundation mission and programs are so she can be looking for investments that align.
- Network with your peers. Ask other like-minded and similarly focused foundations to alert you if they are approached with mission related investments.
- Get the word out. If you let your grantee community know that you are looking for mission related investments, you will most likely start to see a few cross your desk.
- Attend conferences on impact investing. If you haven’t been invited, ask to be put on the mailing list. Continue to check our website resource list for upcoming seminars and conference resources.
- Form an Impact Peer Action Group with other like-minded investors (colleagues, friends, family). Use your collective power to share deals, influence your advisors and learn together.
- Check out http://www.Toniic.com.
Q: How to analyze deals?
A: Some thoughts on deal evaluation:
- Use an Evaluator tool tailored by you and your investment advisor (see our evaluator).
- Let your investment advisor know that you expect a full financial due diligence process on impact recommendations – the same due diligence they would perform for any other investment recommendation.
- Tell her that you will perform the mission / program related due diligence.
- Ask other impact investors if they will share their due diligence process so you can continue to hone your own.
Q: How to monitor results?
A: Some thoughts on monitoring:
- Build in monitoring expectations at the front end. Set expectations with your investment advisor and with the investee during the due diligence process.
- Decide on appropriate benchmarks for measuring performance for both financial as well as mission and program related performance.
- Review these benchmarks either quarterly or annually as appropriate to the investment.
- Consider utilizing IRIS metrics to measure the impact of your investment.
Q: How to convince your investment advisor?
A: At a recent meeting of like-minded impact investors, the single most effective tool cited for getting your investment advisor to participate was tenacity. You may want to share the following with your advisor:
- First, share the recently published report about KL Felicitas’ impact investment portfolio, showing financial and impact results from 2006-2012. Evolution of an Impact Portfolio: From Implementation to Results.
- In 2005, nearly one out of ten investment dollars was actively involved in socially responsible investments.
- In 2006, the Social Investment Research Analysts Network (SIRAN) found that 79 companies in the S&P 100 Index included special sections on their websites, providing information on their social and environmental policies and performances. This is a 34% increase over 2005.
- Remind your advisor that you are the steward of these funds and she works for you.
- Let your advisor know that there are other investment advisors who are actively involved in this growing space and you may consider moving the funds. This will certainly get her attention.
- Provide your advisor with an impact investment objective to be met over a specific time period and let her know that she will be evaluated on how well she meets this objective as well as meeting the ROI. Tell your advisor that you do not accept the myth that both cannot be achieved.
- Bring your advisor copies of an Evaluator tool tailored to align with your mission and programs. There is a template on this website for your use.
Q: How to optimize for deal flow success?
A: Consider the following:
- Get your investment and philanthropic advisors on board
- Set an impact investment goal or policy
- Include impact updates in your quarterly investment review meetings
- Work with your advisors to tailor an Evaluator so that your advisors are clear regarding your expectations
- Check out the resource list on this website and share it with your advisors. Read and discuss the information with your advisors.
- Network with like-minded individuals and foundations
- Attend impact investment related conferences