Return on Educated Investment
We were delighted to see your cover story on socially responsible investing, "Yang, Meet Yin" by Roger M. Williams (January/February 1998). Our own experience as a small family foundation (current endowment of $14 million, but $10 million when we began getting involved in this issue) confirms your views that putting endowment funds in a socially responsible fund, as well as making program related investments (PRIs), are perfectly feasible undertakings for foundations on the smaller end of the spectrum.
We received our endowment in 1992 and from the outset had a "no-tobacco" screen on our investments. However, over time our board became increasingly interested in moving at least some of our endowment into a fund or funds that would allow for more detailed screening of investments. We began the process by educating ourselves about what socially responsible investment funds do. We invited a panel of three investment advisors to a board meeting to make presentations and answer our questions. We learned that there were many choices of both investment advisors and mutual funds, as well as choices of what types of affirmative and negative screens were available to us. We took a hard look at investment performance and realized that many of these funds were competitive. One of the panelists also suggested we look into the option of making low or no-interest loans to nonprofits (PRIs) in light of our two program areas: homeless families and at-risk youth.
Our focus on homelessness made PRIs in the low income housing area seem a natural next step. Given the constant lack of available financing for the development of such housing, we felt we would be leveraging our funds effectively by making these PRIs. Because of our limited staffing and lack of expertise in the area, we decided to make our PRIs through intermediaries, organizations that had the experience and technical expertise to reloan or regrant our money to nonprofits who could not otherwise access credit. In November, 1997 our board voted to make $300,000 in PRIs to four intermediaries focusing on community development and low-income housing. We made the loans for five year terms, one at 0 percent interest and the other three at 3 percent interest. Although we were not looking to generate income from this money, we realized we could rationalize the investment decision we had made by comparing it with our bond portfolio which was only yielding a return of about 6 percent at the time.
Our board simultaneously voted to invest $1 million of our endowment in a socially responsible fund. We opted to modify an existing investment screen and put the money with an individual investment advisor rather than a mutual fund.
The relative ease with which we were able to educate ourselves and make these changes in our investment portfolio illustrates that socially responsible investing does not need to remain in the sole province of the mega-foundations.
I was glad to see your coverage of socially responsible investing (SRI) in "Yang, Meet Yin" and was interested to read of the trends developing in that regard.
At the Foundation for the Jewish Community (FJC), a community foundation based in New York City, we are great believers in SRI, and try to ensure that our donors/recommenders have the opportunity to "do good" in addition to "doing well" when investing their charitable dollars.
One such opportunity is our Agency Loan Program. Since its formation a few years ago, FJC has informed our donors that a minimum of 10 percent of their funds will be invested in our Loan Program, which provides critical financing at market rates to charitable agencies serving the community. To date, the foundation has made almost $2 million in loans-ranging in size from $4,000 to $350,000-providing financing for a variety of endeavors: group homes for disabled adults, programs for learning disabled children, a literacy program, and a drug rehabilitation program. Of the 15 loans made, ten have been fully repaid, with interest payments returned to the donors' funds. While there have never been any loan defaults, the principal of these loans is guaranteed to protect our donors' accounts from losses.
In April 1997, we offered another opportunity for our donor/recommenders to match their investment interests with their charitable interests by adding the Domini Socially Responsible Fund mentioned in your article to our roster of investment options. I am pleased to say that at the end of this past calendar year, those fund's 30.6 percent return meant that our donors' charitable dollars have increased significantly.
SRI offers an important tool for many foundations, and we are proud to be able to offer its advantages to both our donors and the charitable organizations that benefit from their generosity.
"Moot, if Not Childish" Obsession with ROI
I was so glad to see FN&C broaching the unbroachable topic of social investing. It does make foundation leaders "squirm," and squirm they should. The dissonance between mission and investments is far wider than need be in most foundations, and trustees too often escape the problem by embracing a narrow dualistic view of foundation management, 'We administer grants, they (the trust company or finance committee) manages investments. They make money, we give it away.'
I would add to your observations that investment performance really shouldn't matter as much with foundations as with other trusts bound by the prudent investor rule. There is no mandate in any of the laws governing the fiduciary care of foundations (IRS Code, federal trusts legislation, or "the business judgement rule" as interpreted by the Uniform Management of Institutional Funds Act) that prohibit mission-related investments, social screening or shareholder activity.
Foundations are regarded by all regulatory agencies as a unique trust, subject to their own standards of care. So the notion of "competitive return on investment" is moot, if not childish. Rather than trying to out-perform the Fidelity Growth and Income Fund, the Standard and Poor's Index, or Foundation X, would it not seem more sensible to regard a foundation endowment as a distinctive asset that can be used to further mission?
Since most foundations are allegedly in the "social investment" business, shouldn't the assets left to them by original donors be regarded as social investment instruments? I do hope your articles opened some eyes to the possibility.
The View Across the Atlantic
Your articles on ethical investment were enlightening, provocative and pertinent to any trust-even one across the Atlantic.
The pattern of grantmaking in the United States is somewhat different from that over here where we have rather fewer family and community foundations. Your foundations also appear to me to be more proactive-or perhaps it is only those that you feature. We too have our investors in social development (as opposed to gift-givers) but you have more of them.
In his letter to the editor citing foundations that are reluctant to disclose information, "Who Are They Protecting?," (January/February 1998), William W. Treanor mistakenly says that the McKnight Foundation "won't provide business addresses of grantees." Business addresses of our grantees are publicly available in our federal tax return, and we routinely publish grantees' contact names and phone numbers in our quarterly news releases.
What It Takes to Raise the Bar
Later this spring the Pew Partnership will be releasing a retrospective of its civic experiments in 14 "laboratories for urban problem solving" across the nation. As I perused the documentation for our findings, I was struck by their dissonance with Marjorie Fine's commentary, "A Funder's 'Top Ten Reasons'" (January/February 1998). What our research suggests, and what, more importantly, concrete results in 14 communities attest to, is the effectiveness of well-designed foundation programs to raise the bar on our expectations of what our communities and our nation can accomplish.
On one level, tangible results speak for themselves. In Santa Fe, New Mexico, 450 lower-income families are new homeowners. HandMade in America, a grassroots initiative to build community around the western North Carolina crafts industry, approximates its economic impact over the last two years at $1.5 million through the creation of new businesses, increased craft sales and new capital investment. Three Family Resource Centers in Charleston, West Virginia, have served 5,000 children and their families, and the model is being replicated statewide.
On another level, the 14 participating communities assert the less tangible outcomes of their participation in a national initiative-the broadened perspectives, the expanding networks, and the increased capacity of their communities to collaborate. Components of the initiative design, from an invested advisory board to a hands-on communications strategy, enhanced the ability of each of these critics to work for change.
Marjorie Fine's observations are certainly provocative. It is no secret that grantmakers make mistakes and that their strategies are sometimes misguided. But to trivialize the positive role philanthropy can and does play in community change is to neglect opportunities to learn effective strategies of stewardship.
Carole J. Hammer
Scholarship Benefits for All
Thanks for the fine article by Virginia Peckham, "Setting Up Scholarship Funds" (January/February 1998). Both the need for and the interest in scholarship programs for deserving students continue to grow. The article was most timely.
I was pleased that the article also gave attention to the issue of "aid displacement" by many colleges and universities. Your readers should be aware that, in the long run, a growing number of post-secondary institutions are recognizing that this practice is detrimental to them and to communities, corporations, foundations, and individuals making financial commitments to provide outside private sector scholarship assistance.
Over 320 collegiate partners of the Citizens' Scholarship Foundation of America have made formal agreements to ensure that students receive positive financial rewards from the scholarships that arrive on campuses through CSFA's 775 local Dollars for Scholars scholarship foundations and through the over 650 scholarship programs administered by our Scholarship Management Service. If any of your readers would like a list of these collegiate partners, please call CSFA at 800/537-4180.
When scholarships are administered correctly, they are a benefit to students, families, schools, colleges, and to the scholarship sponsor.
William C. Nelsen
Department of Corrections