Family Philanthropy and Impact Investing

The field of mission-related investing or broadly termed ‘impact investing’ continues to build momentum as investment opportunities span multiple asset classes, infrastructure improvements promote transparency, and social entrepreneurs are building sustainable, scalable companies. To date, industry growth has been driven largely by institutional investors such as public sector pension funds, banks, and private foundations.  We are now seeing a growing movement by families who seek to realize their core values and effect societal change through their family assets.  

A recent paper published by the Federal Reserve Bank of San Francisco Working Paper Series, “The New Family Philanthropy: Investing for Social and Environmental Change” co-authored by Lisa A. Hagerman and Daniel W. Geballe, discusses the appetite of family foundations and family offices in impact investing.  In June of 2013 and October of 2013 the Federal Reserve Bank of San Francisco and the Federal Reserve Bank of Boston, respectively, along with DBL Investors, held small roundtable discussions on the topic.  The roundtables brought together investment advisors and consultants, family foundations, and academics to discuss the role of family foundations and family offices in impact investing.

Through interviewing trustees, staff, investment advisors and consultants, key findings included the following:

  • Investing through venture capital often aligns with the philanthropic motivations of family investing;
  • Impact investing often happens from internal, and often relatively young board champions;
  • Constructing impact portfolios across all asset classes in targeted geographic/issue areas can be challenging for very issue-specific clients due to a lack of managers with a proven track record; and
  • While family foundations and family offices may have separate strategies, there is opportunity for future synergy.  The Council on Foundations estimates that family foundations alone hold roughly $245 billion in assets while the Family Wealth Alliance estimates that single and multi-family offices manage roughly $1.6 trillion in assets.

Below are commentaries from the authors and interviewees on impact investing practices.

richad-wooRichard Woo, CEO, The Russell Family Foundation:

The Russell Family Foundation (TRFF) is expanding its long-standing work in mission-related investing by turning more attention to reducing carbon in the atmosphere.  Specifically, TRFF is divesting its foundation portfolio of the “Filthy Fifteen,” considered some of the largest and dirtiest coal company stocks in the U.S.  These divestments were completed in August 2013.  At the same time, the Foundation is putting in place a process for reinvesting in renewable energy.  As in the past with its mission-related investing and financial practices, TRFF is taking a multi-faceted approach in addressing the climate impact of fossil fuels including: shareholder engagement, divestment, renewable energy reinvestment, and movement building.

lisa-hagermanLisa A. Hagerman, Director of Programs, DBL Investors:

Family foundations and family offices can be more agile in their decision making and have a broader definition of fiduciary responsibility compared to institutional investors.  Families may be empowered to direct their assets to address societal issues from climate change to the obesity epidemic in America. Venture Capital as an asset class, which funds innovative early stage companies, resonates with families that created their wealth through entrepreneurship.

dan-geballeDaniel W. Geballe, Board Member, Levi Strauss Foundation and The San Francisco Foundation’s Koshland Committee:

Many of the impact investing champions within family foundations are relatively young, generally see a less rigid division between investing and philanthropy, and view impact investing as a way to assert themselves within their family or institution while enhancing the impact of the foundation. For older generations, embracing the interest of the younger generations can be a means to teach the discipline of traditional investing while encouraging the next generation’s engagement.

zac-russellZac Russell, Board Member, The Russell Family Foundation:

The Russell Family Foundation includes four families and each one has a different view of the world.  The foundation’s core mission of environmental stewardship resonates with all the foundation’s leaders – both the younger and older generations. Impact investing provides an opportunity to rethink our investment philosophy and leverage all of the foundation’s assets towards mission.