In an email distributed on 5 April, Ford Foundation President Darren Walker announced the decision by the Foundation’s Board of Trustees to authorize allocation over ten years of up to $1 billion from the endowment “for mission-related investments (MRIs).” The decision follows “many months of analysis and planning,” he wrote. The action could result in critical support for African organizations to set their own development agendas. In the following posting on the Foundation’s Equals Change Blog, Walker explains what led to the decision.
Unleashing the power of endowments: The next great challenge for philanthropy
For the better part of two decades, the world of philanthropy has been engaged in an important, sometimes contested, conversation about “impact”—both how we measure it and how we deliver it. More recently, this discussion—in the Ford Foundation’s halls and throughout our sector—has focused on how to create impact through the capital market, specifically through impact investing.
As with most foundations, our own impact-related work—our support for individuals, institutions, and ideas—has remained almost entirely separate from the way we steward our endowment. While most of our work is grant making, the vast majority of our assets are actually financial investments.
Since 1969, US tax law has mandated that foundations pay out a minimum of five percent of their total assets each year. For the Ford Foundation, in recent years, meeting (and often exceeding) this requirement has translated to an annual grant-making budget of around $500 million to $550 million. Meanwhile, we put the other 95 percent of our assets to work in the investment market, with the goal of earning financial returns that sustain the grant-making power of our endowment over time. This, I hasten to add, is no easy task.
I believe the time is right for us to look at this paradigm with fresh eyes—to consider how we might start to bridge the gap between philanthropic impact and investments. Indeed, as I wrote last year in “Moving the Ford Foundation Forward,” we have come to believe that if we expect to overcome the forces of injustice and inequality, we need to expand our imaginations and our arsenals. In short, we must begin to more deliberately leverage the power of our endowment.
And so I am pleased that after many months of analysis and planning, the Ford Foundation’s Board of Trustees has authorized the allocation of up to $1 billion of our endowment, to be phased in over 10 years, for mission-related investments (MRIs). While this field is still emerging, we are making this commitment because we believe MRIs are the next great tool for social transformation, in philanthropy and beyond.
If philanthropy’s last half-century was about optimizing the five percent, its next half-century will be about beginning to harness the 95 percent as well, carefully and creatively.
Our history in impact investing: Program-related investments (PRIs)
This decision was a long time coming, and would not be possible if not for the hard work of so many pioneers and visionaries in the impact investing community. Indeed, it represents the next step in a long march that stretches back to the very beginnings of impact investing.
Fifty years ago, in April 1967, Ford Foundation staff presented a report to trustees, entitled Program-Directed Investments. It argued that philanthropy was about more than grant making.
Our predecessors believed that philanthropy “should be viewed as a continuum of contractual options with the outright grant placed at one extreme, something close to a market investment at the other, and in between a series of alternatives representing ascending degrees of gifting.” The following year, the foundation sought and received a ruling from the IRS that allowed us to create a new investment vehicle called program-related investments, or PRIs.
Read the entire article here.
