Endowed foundations exist to support selected social goals. Their missions range across the spectrum. But regardless of their values, most philanthropists agree on this: more money going to their chosen missions beats less. In fact, those who argue for value-neutral investing do so claiming greater returns lead to more money for grants.
Here’s the irony. Putting the most money toward mission actually results from aligning a foundation’s investment policies with its social goals. It’s not magic-- just simple math.
Two philanthropy basics. First, private foundations must spend at least 5% of their endowed value on their missions each year. That’s the law. Second, foundations care about protecting their principal and are not known for aggressive investment policies. Most tend to seek returns of 9-10% per year.
Imagine a foundation that invests just for greatest returns and achieves 15% growth. A $100 million endowment would grow to $115 million, pay $5 million in grants and start the next year with a value of $110 million.
But suppose the foundation invests 10% of its endowment toward its mission instead. This can mean they invest directly in community-based ventures, vote proxy shares, or make low interest loans to mission-related ventures. If it earns back its money on these investments and makes 15% on the remaining portfolio, it will have directed $15 million toward its mission ($10 million investments and $5 million in grants) and have an endowment of $108.5 million. The foundation will have realized a 200% increase in money toward mission at an (unrealized) loss of just 1.5% in total value.
When the goal is putting more money toward mission, aligning investments with a foundation’s values simply adds up.