The LA Times has run a two part series on the investment policies of the Bill & Melina Gates Foundation (you can read part one here and part two here). The gist of the stories is that the companies that the Gates Foundation has invested in are causing some of the very problems that the Gates Foundation is making grants to try to overcome. The Gates Foundation has already responded to say that they will be reviewing their investment policy.
Some people see this as a story about socially responsible investing. But, I think that this story highlights the key need for private foundations and other philanthropic entities to view the management of their resources (their investment assets) as one of their core responsibilities rather than something apart from the foundation (full disclosure: I am an investment manager who specializes in managing philanthropic assets).
Lucy Bernholz at Philanthropy 2173 says:
“Maybe there is a moment here – a moment for foundation executives and trustees to ask these bigger questions. What can philanthropic resources accomplish? How should they be structured to do so?”
Trent Stamp the president of Charity Navigator says:
“So what’s the real problem here? It’s a case of the foundation’s program officers and investment strategists simply not being on the same page. This is an all-too-common practice in a sector where one side of the organization is charged with saving the world, and the other needs to raise money to support the do-gooders.”
That’s the key, foundations need break down the separation between investment management and grant making and make sure that everyone is working together. This is obviously self-serving, but at Ensemble Capital we talk constantly about the need for philanthropic entities to work with investment managers who understand philanthropy.
Think of the leaders of the grant making programs as the CEO and the leaders of the investment management side as the CFO. Imagine if a business was operated with the CEO and CFO pursuing different objectives and using different strategies. The business would be handicapped and could only achieve limited results. The same is true in philanthropy.
Without a doubt foundations should strive to align their asset management with the values and operations of their philanthropic activities; and where possible, invest in socially responsible companies that have proven to generate good R.O.I.
HOWEVER, I can see (from a pure investment strategy perspective), why the Gates Foundation might find this difficult to do.
With the amount of assets that they must invest, whilst keeping with their investment policies (in terms of % ownership, liquidity, risk exposure etc), I think it may prove difficult if not impossible for the Gates Foundation in particular to align their investments with activities.
In short, until the progressive, socially responsible companies become as big and relatively stable – on a market cap basis – as the leaders of the industrials, I can’t see how the largest foundations to do this.
This should not discourage “the rest of us” in advocating for this kind of alignment but my above point is one I feel being left out of the conversation on this topic.
Good point, Tom. I tried to clarify in my post that I’m not talking specifically about SRI and instead am talking about investment management and grant making working together. Simply screening out certain companies is not always going to be the best solution. As you point out, the Gates Foundation in particular might find it hard to pursue an effective investment strategy if they screened out all companies that have any connection to activities they are working to change.
Another question is whether screening out any companies in smart. Maybe the Gates Foundation would feel they were best served by being large, active owners of these companies so they would be in a position to influence their actions.
I was originally going to include the option of Private Equity or Venture Capital as alternatives to having to invest in public companies with market-caps big enough to support them.
While not for everyone, I am inspired by the number of “hybrid” structures that are committed to specific mandates and committed to multiple mechanisms (including investing in for-profit companies) to accomplish those mandates.
As Africa is personally my big passion, this is the approach I’m taking and encouraging my friends to do the same.
Luckily this attitude seems to be increasing in attitude and practice.