Ed. Note: This article first appeared in Bloomberg
The Ford Foundation is committing $1B of its endowment over the next 10 years to money managers who invest in affordable housing and financial services for people in developing countries.
The move marks a shift by the New York-based nonprofit, from investing its $12b endowment in traditional assets to funds aligned with its mission that also aim to earn market-rate returns, the foundation said in a statement.
“We believe the time has come to step up and put our money where our mouth is,” Ford Foundation President Darren Walker said in a conference call last week.
“If we as a society are going to solve the world’s problems, every sector needs to play a role.”
Guidance from the Treasury Department in 2015 clarified that foundations can consider their mission as part of prudent investment decisions, removing concerns that doing so would conflict with their fiduciary duty to act in the foundation’s best interest, Walker said.
The size of Ford Foundation’s commitment will hopefully push others to make similar pledges, he said.
There are more than 86,700 grant-making foundations in the U.S. and they control more than $865 billion in assets, according to the Foundation Center, which has tracked foundation data through 2014.
But only a small percentage of them have matched their endowment strategies with the social causes they support, such as investing in companies that protect the environment.
Most foundations that pursue mission-related investments apply less than 5% of their endowments toward it, according to a 2016 study of 29 foundations by UPenn.
An early exception is the F.B. Heron Foundation, which is deploying 100% of its $273 million endowment in investments that fight poverty.
At the Ford Foundation, investment income is critical to achieving its goals, which include reducing poverty and injustice and promoting international achievement.
Started in 1936 with a $25,000 donation from Henry Ford’s son Edsel Ford, the nonprofit has grown into the second-largest private foundation in the U.S. after father and son left their nonvoting stock of Ford Motor Company to it.
The foundation’s portfolio saw an annual return of 3% for the the fiscal year ended Dec. 31, 2015, according to documents filed in March.
The Ford Foundation has already built expertise in the mission-aligned investment areas it is targeting for its endowment, Walker said.
The foundation has supported affordable housing and financial inclusion projects for years, backing microfinance, savings and insurance products to help individuals in developing countries.
The foundation currently has $75 million in program-related investments in affordable housing and $77 million in financial inclusion, which do not seek market returns.
The foundation will invest the $1 billion over 10 years by gradually shifting money into funds that seek to earn “not only attractive financial returns but concrete social returns as well,” according to the statement.
Posted by: The Trust Advisor