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E&F Advice & Administration

March 09, 2022

Considerations for Foundation Trustees

How Foundation Trustees Can Align the Mission of Their Philanthropy with the Mission of Their Investments

Historically, a foundation may have handled grantmaking and other philanthropic efforts with one team, while another team worked to fund programs and sustain the foundation’s financial health. However, over the past decade or so, some foundations have integrated the two disciplines through mission-aligned investing. A foundation’s trustees can play a vital role in helping to align the mission of the organization with that of its investments. Following are five key steps:

Start small and focus on education

The first step is always the hardest. Some board members “lean in” to the concept of mission alignment, while others immediately “lean back.” The end result is often analysis paralysis, that is, the state of overanalyzing a situation so that a decision is never made. To overcome this, start with a small working group whose goal is to understand the landscape and educate the board of directors so that all the players are speaking the same language. Use data to help transform the mission into a concrete investment plan.

Move in a slow, methodical manner

Some of our success stories involve foundations that started by making a commitment to mission-align 5-10% of their portfolio in year one, then gradually increased the allocation in the ensuing years. Moving slowly allows everyone time to get comfortable with the new approach. It is normal for the entire process to take 5-10 years or even more.

Establish yourself with public market strategies

We have transitioned several foundations from traditional investment portfolios to mission-aligned portfolios. For foundations without full-time staff, starting with public market strategies, not private investments, may make sense. Beginning the journey with public stocks and bonds allows the board to develop comfort with impact investing, without being locked into private market vehicles for up for 10 years.

Leverage your grantmaking arm to experiment with program-related investments (PRIs)

We have seen some successful cases of foundations using PRIs to experiment with impact investing. Investments range from buying equity in socially oriented startups to providing below-market-rate loans. This can be a good approach for foundations with a full-time staff and a robust grantmaking infrastructure. If approached with an open mind, it can be a great learning experience as well.

Maintain excitement by staying engaged in the mission

We have noticed a transformation in boards that embrace the mission-aligned journey. On top of engagement levels increasing and meeting participation rising, next-generation board members begin taking greater responsibility for the foundation’s investments. This is especially true for private family foundations. So embrace the journey and have fun along the way.

PRIs are investments made by foundations to support their charitable activities, with financial gain being a secondary purpose. PRIs can include loans, equity investments, bank deposits and guarantees.

If you have questions or are interested in learning more about our experience working with foundations transitioning to a missionaligned investment strategy, please reach out to your Glenmede Relationship Manager or email EFSolutions@Glenmede.com.

 

 

This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.