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​Philanthropy + Finance = Mission Investing for Private Foundations

A PRIMER FOR PRIVATE FOUNDATIONS: PROGRAM-RELATED INVESTMENTS, SOCIALLY RESPONSIBLE INVESTING AND IMPACT INVESTING

VIEW WHITE PAPER (PDF)

​A study analyzing the relationship between employee satisfaction and long-run stock returns found that a portfolio of Fortune Magazine’s “100 Best Companies to Work for in America” from 1984–2005 outperformed the overall stock market by four percent annually.

SOURCE: Alex Edmans, Wharton School, University of Pennsylvania, “Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices,” 2009.

SUMMARY

Mission investing offers foundations a tool to engage in effective philanthropy and drive social change. As a complement to effective grant-making and other philanthropic activities, mission investing can potentially shape desired social outcomes.

The Tax Reform Act of 1969 required that private foundations distribute five percent of their assets each year. This, along with a host of other rules, unintentionally changed the focus from the mission of the foundation to a mere calculation.

At Abbot Downing, we believe it is important to help foundations craft their short-, intermediate-, and long-term intentions to support their vision. Clearly stated objectives influence the time horizon and types of investment strategies to consider, helping the foundation to be more effective.

In this white paper, we explore three types of mission investing, covering the spectrum from minimal return expectations to a dual concern for financial return and mission-based outcomes.

KEY TAKEAWAYS

  • Successful mission investing requires planning, blending program and financial teams, rigorous investment processes, and building applicable social metrics.
  • According to the IRS, the primary purpose of program-related investments (PRI) is to accomplish one or more of the foundation’s tax-exempt purposes. The generation of income or appreciation cannot be a significant purpose in a PRI.
  • Socially responsible investing (SRI) describes an investment strategy seeking to balance financial return with social good in the public markets.
  • Impact investing involves private investment intended to drive both financial and mission outcomes. Investors expect at least a return of their capital with an adjustment for inflation and, in many cases, a lot more than that.