Investments tied to mission

Foundations should think about their missions when they invest, not just when they make grants, a leading venture philanthropist says.

“For most foundations, 5 percent of capital returns is assigned in pursuit of 100 percent of the institution’s larger social mission, while 95 percent of capital assets are managed in pursuit of increasing financial value, with zero percent consideration for the institution’s social mission,” says Jed Emerson in a recent article in the Stanford Social Innovation Review.

Federal law requires foundations each year to pay out 5 percent of their assets in grants, which they aim to fund through income earned on investing their assets.

Emerson describes several foundations that have successfully bridged the gap between grantmaking and investment management, and gives suggestions to foundations that want to rethink their investment strategies.

Emerson, a lecturer at the Stanford Graduate School of Business and co-founder of the Roberts Enterprise Development Fund, suggests that foundations invest in stocks that are not counter to their mission, provide venture capital to grantees, make low-interest loans and below-market-rate investments in nonprofits, and invest in small, medium or startup enterprises.

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