The Nathan Cummings Foundation announced Tuesday it plans to place all of its nearly half-billion-dollar endowment solely in investments that aim to reduce social inequality and mitigate climate change, making it the largest foundation to try to use its entire investment portfolio to generate social change.
Cummings, which notched $443 million in assets in 2016, the most recent year for which records are available, did not set a timetable for when it plans to complete the shift.
Ruth Cummings — chair of the foundation’s Board of Trustees and granddaughter of the foundation’s founder, who made a fortune creating the Sara Lee Corporation — said other board members in her generation have long been interested in impact investing, but attempts to move more swiftly into the practice were nixed by the grant maker’s investment committee. Now, with a fourth generation of Cummings offspring also sitting on the board, the idea has gained traction.
“Times have changed, and the world has changed,” she said. “Our mix of trustees at this time understands what’s at stake in the world.”
Market Problems
The basic premise behind what are known as “mission-related investments” is that the money philanthropies spend in grants is squandered if the assets of a foundation aren’t also allocated to companies and funds that support its grant-making mission.
While many foundation leaders are interested in the approach, several have said not enough investment opportunities are available.
Cummings’s decision to go all-in is a signal of confidence that there is a deep pipeline of public stock, private equity, and fixed-income investment vehicles available, said Sharon Alpert, Cummings’s president.
“The issues we’ve chosen to work on, inequality and climate change, can’t be solved by grant making alone,” she said. “They are market problems. They need market solutions.”
Other Examples
The only other major foundation that has dedicated all of its assets to its mission is the F.B. Heron Foundation. Cummings is almost twice the size of Heron, which completed the task of merging its grant-making and investment strategies in 2016. Cummings has not announced changes in its grant making and is using environmental and social criteria to “screen” its investments rather than designing an overarching strategy that combines investments with its grant programs.
After Heron made the switch, the Ford Foundation followed up in April when it pledged to similarly dispatch $1 billion of its endowment, which hovers around $12 billion.
Others, like the McKnight Foundation and the Rockefeller Brothers Fund, have made similar commitments. As part of a broader $350 million impact-investing plan, the Kresge Foundation in 2015 earmarked $50 million for social and environmental investments. The remainder of Kresge’s assets earmarked for impact investing are going to program-related investments, which count toward a foundation’s legal requirement to distribute at least 5 percent of its assets to charitable causes each year.
According to Robert Manilla, Kresge’s chief investment officer, the foundation continues to look for additional mission investments and has several “in the pipeline.”
Community Funds
The hundreds of millions of dollars that large foundations have pledged to social and environmental investments provide a model to foundations of all sizes that mission investing is a tenable approach to philanthropy, said Matt Onek, president of the Mission Investors Exchange, a membership organization of foundation and investment professionals.
“A lot of community foundations that were dipping their toes in are now making more solid commitments,” he said.
Regional grant makers that have started making mission investments include the Baltimore Community Foundation, the Incourage Community Foundation, and the New Hampshire Charitable Foundation. One reason foundations historically haven’t rushed to invest their endowments in ways that mesh with their philanthropic mission is that they fear their returns will suffer.
Not only could low returns jeopardize a grant maker’s long-term financial health but until recently, they could also have resulted in a legal penalty.
Foundations are subject to a tax when their investment officials don’t demonstrate that they have invested prudently.
In 2015, the Internal Revenue Service signaled that mission-related investments don’t necessarily jeopardize a grant maker’s long-term viability and that such investments would be considered within legal bounds
“The guidance removed a hurdle, whether it was real or perceived,” Onek said. “It certainly helped make it easier for folks.”
Overcoming Obstacles
Even so, some foundation leaders warn that mission investments are unproven. Larry Kramer, president of the Hewlett Foundation, has suggested that the returns may be lower than proponents suggest. It is not clear, he wrote in the Stanford Social Innovation Review in June, whether the social gains made through investing the endowment would ultimately pay off.
It’s not just debates over the returns and the legal standards that have hobbled impact investing. Institutional hurdles also get in the way.
Investment teams at many foundations are often disconnected from the grant-making program staff and sometimes report directly to the foundation’s investment committee, says Ian Magee, managing partner of New Profit, who previously led financial operations at the Heron Foundation.
Most foundation investment managers are trained to focus only on maximizing financial returns and fear lower returns could damage a grant maker’s ability to support programs well into the future, he notes.
“You have entrenched organizational structures which make it very difficult to move away from traditional investing and very traditional operating modes at these established old foundations,” he said.
Adding Expertise
Ruth Cummings is confident the foundation is on the right track. Over the past several years, Cummings has carved out more than $6 million from its endowment to test the strategy, starting with investments in community-development financial institutions, which provide loans in needy communities, and in credit unions. Then it gradually shifted over to investments in energy companies and funds.
To prepare for the shift, Cummings picked Rey Ramsey, managing partner of Centri Capital, an impact asset-management firm, to join its board. Another impact-investing veteran, Lisa Green Hall, who manages an impact-investing portfolio at Anthos Asset Management, also joined as an independent adviser of the board’s investment committee.
“This is the future of philanthropy,” Cummings said. “We are stacking our deck with people who orient that way, who are excited about being on this journey with us, and who have some experience already.”
Correction: The caption is a previous version of this article misidentified Sharon Alpert in the photo.
