This decision is a natural extension of our history of PRI investing, which will continue to play an important role in our approach to impact. It is deeply rooted in our ongoing program work to build more inclusive economies, help mature the impact investing sector, and fulfill our special obligation to help move market-based economies toward “the high road”—squaring the dynamism of markets with society’s highest values, especially fairness and human dignity.
—Darren Walker, President, Ford Foundation
For fifty years, advocates have been urging foundations to think more holistically about applying their assets, putting some of the 95 percent to good works, not just the five percent payout. Much of this advocacy has been coming from “inside the house”—that is, from inside foundations and from other foundations which have themselves have taken steps to go all-in. Discussions of what this more holistic application of foundation resources could look like have included everything from investment screens (divesting philanthropic portfolios of fossil fuel, private prison, and other noxious stocks) to spending down assets for public benefit in the current epoch. These calculations frequently included as options program-related investments (PRIs) and mission-related investments (MRIs), which have been in play among a smallish group of foundations for decades but consistently underutilized.
So, what on earth could have suddenly possessed the Ford Foundation to decide to carve out a billion dollars from its $12 billion endowment to devote to MRIs? Foundation president Darren Walker says there was nothing sudden about it. The prospect has been under discussion and development for a solid year, with active, critical, and even skeptical board participation. He pointed to other foundations that had laid a path that Ford could follow…
We follow in the footsteps of—and are learning from—those foundations that pioneered the use of this tool. They include the early signatories to the More for Mission movement, as well as a number of other foundations that have announced new and significant initiatives in recent years, including the Rockefeller Brothers Fund, John D. and Catherine T. MacArthur Foundation, Kresge Foundation, McKnight Foundation, Nathan Cummings Foundation, F.B. Heron Foundation, Wallace Global Fund, Bill & Melinda Gates Foundation, and Open Society Foundations.
…but he also acknowledged that this commitment from Ford might jump-start the growth of a field with larger institutions as participants through its sheer size.
We are making this commitment because we believe MRIs have the potential to become the next great innovation for advancing social good. […] We need to expand our imaginations and our tools if we want to tackle the large-scale problems facing the world today. We can’t neglect the tremendous power of markets, including the capital markets, to contribute—and with today’s announcement, we are putting a significant amount of our money where our mission is.
Further, Walker points out that Ford has a half-century of experience in PRIs.
Since 1968, the foundation has directed more than $670 million to PRIs, supporting social entrepreneurs and community development institutions around the world in their efforts to, among other things, preserve affordable housing, improve access to financial services and markets, create quality jobs, and advance arts and culture. And, as expected, our PRI fund has broken even—or better—over time, while making catalytic investments. PRIs allow us to take risks consistent with our mission in ways that much larger investors, such as banks and pension funds, often cannot or will not.
To place Ford’s initiative in perspective, $1 billion over the next ten years may end up being about 18 percent of what is expended in grants (between $500 and $600 million) each year—a significant commitment over and above the grants budget but not an overwhelming one. Walker does not expect this commitment to reduce that grants budget.
Perhaps the greatest value of Ford’s commitment will lie in the positive example that might be achieved influencing the larger field of institutional investors—pension funds, universities, units of government, private foundations, and so on. Ford’s initiative is explicitly intended to advance the larger market for mission-related investments, and in an environment where institutions of all kinds are under increasing public scrutiny regarding their ultimate impact on local communities, the impact of that could be huge. Each of these institutions has recently been called to account by stakeholders for their investment strategies. Walker writes:
Significant changes in the capital markets have also made this step much easier for us to explore, and hopefully for others to consider, too. All manner of financial institutions, from private wealth advisers to large asset owners, are now deploying investment products to meet the rapid increase in investor demands for sustainable investments.
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A significant benefit from the Ford commitment could be the information made available about its investment methods—how mission-related investments are chosen, how social value is assessed, and how the investments perform financially and practically. The transparency and tools and charisma of the process will need to equal the claimed outcomes for it to achieve its potential.
But this area of philanthropy has been marked by excruciatingly slow decision-making. Program-related investments are storied for their long timelines and tons of due diligence meant to mitigate the very risks they are supposedly designed to take. Is it possible that Ford’s billion dollars could help increase the courage and timeliness of other foundations in this area?
As a matter of fact, Walker’s public statement acknowledges it has been exactly 50 years since Ford’s own staff recommended program-related investments as a critical strategy to its trustees, and this announcement somewhat ironically describes this stage in 2017 as a “measured and carefully considered step to experiment with new kinds of investments that enlarge the meaning of the word ‘returns.’”
Philanthropy and the nonprofit sector were largely bystanders as advocates of economic alternatives during the economic crisis of 2008–09. Ford’s new creativity with its assets could signal a new philanthropic willingness to help steer the economic part of America’s ship, in the face of persistent and troubling caveats: Can you leverage the power of the market to counter market failure? Is it possible to use the master’s tools to dismantle the master’s house after all?
Ford’s President has his eye on leveraging big returns with the foundation’s assets. “Previous divestment movements tried to prevent investors from harming society; now, institutional investors can begin to move from ‘do no harm’ to exploring how to ‘do more good.’”
The Ford Foundation’s plan involves investing through separate funds, with a special team in place working toward “making housing more affordable and inclusive domestically and expanding access to vital financial services overseas.” More importantly, there’s a larger vision at work:
Not only will what we invest in reflect our values—how we make these investments and report on them will be informed by our mission, as well. We hope to make diversity, equity, and inclusion bywords of this investment movement, paying attention to the makeup of investment teams, as well as where they invest and with what values. We join a growing number of committed pension funds, universities, foundations, and other institutional investors in not only considering diversity and inclusion but recognizing how it can be a powerful contributor to performance and impact.
The proof of the pudding is in the eating, of course, with great interest and lessons aplenty in how the Ford Foundation’s big commitment actually turns out. While philanthropy is conceptually celebrated for its flexibility and autonomy to innovate and take calculated risks, when it occurs in fact, it deserves close attention and credit. We might all learn something from this.