Long a giant in health care philanthropy, the Robert Wood Johnson Foundation is making its mark in impact investing — the “double bottom line” investments meant to generate both financial and social returns.
Over the next three years, Robert Wood Johnson plans to more than double the money it dedicates to impact investing by providing $325 million in equity investments, debt financing, and loan guarantees to a range of projects. This activity is meant to preserve homeownership, improve the quality of life in New Jersey, provide communities with safe drinking water, and attract commercial investors to community development projects around the country.
The new investments will be led by Kimberlee Cornett, who came to Robert Wood Johnson in 2020 after leading the Kresge Foundation’s impact investing for nine years. In her new post, Cornett has been free to build a strategy from scratch; Robert Wood Johnson had made individual impact investments but had not developed a broader strategy.
“The foundation really had kind of a blank sheet of paper,” she said.
The new investments, which, combined with the foundation’s previous outlays, will total $625 million in capital deployed, will come in the form of program-related investments, or PRIs. Unlike investments made from a foundation’s endowment — called mission-related investments, or MRIs — PRIs come from a grant maker’s program budget and count toward the charitable contributions that foundations are required to make by the Internal Revenue Service.
The idea behind program-related investments is that the commercial market has overlooked investments among certain populations or in certain locations. By providing seed equity funding from a foundation that has a larger tolerance for failure than a typical investor, or by putting up funds that backstop a loan if it fails, it’s easier to attract market players to investments they may otherwise forgo.
Large Portfolio
Robert Wood Johnson’s enlarged portfolio will place it in the top echelon of foundations making impact investments. The MacArthur Foundation, for example, has 78 program-related investments in the field totaling $392 million. The Ford Foundation has $258 million invested, and Kresge plans to put up $42 million in investments and loan guarantees this year. Topping them all is the Gates Foundation, which started a $400 million fund in 2009 that has grown into a $2.5 billion investment pool.
The size of Robert Wood Johnson’s planned portfolio has given it a major entrance in the market, said Elizabeth McGeveran, vice president of investments at the McKnight Foundation. Robert Wood Johnson, like other foundations, has been trying to use its investments to advance racial equity in recent years, McGeveran said.
“We’re not going to see success in housing unless we’re mindful of racial equity and the inequity that’s already built into housing. The same goes for health equity, and the same for climate,” she said. “We’re seeing foundations deliberately weave racial equity through those topics because there’s a better understanding that if we’re not solving for racial equity in each of these key areas, we’re not going to succeed.”
Homeownership for People of Color
A core part of Robert Wood Johnson’s strategy is to secure and preserve homeownership among people of color. That, says a report released this month by Bridgespan, is one of the keys to reducing the racial wealth gap in the United States — and a way that investments by philanthropy can play a part.
Citing statistics compiled by the National Association of Realtors and the National League of Cities, about 77 percent of white families own their homes, compared with 44 percent for Black families, 51 percent for Hispanic families, and 53 percent for Indigenous families.
“Long-standing policy choices — from redlining that locked out Black families to predatory lending, rigged appraisals, and disinvestment in affordable housing development — have systematically denied the benefits of homeownership to communities of color,” the report states.
Two years ago Robert Wood Johnson’s Cornett led a $4 million placement in Blackstar Stability Distressed Debt Fund. The fund purchases mortgages from people, particularly people of color, who are on the verge of being evicted. It then restructures the terms of the mortgage, giving homeowners more favorable terms, and eventually bundles and sells the mortgages on the market.
The effort, predicts Blackstar, will save homeowners $125 million in interest fees over the life of their loans and increase the equity in their homes by $45 million.
Cornett sees investments in preserving homeownership as an essential part of a larger strategy to narrow the racial wealth gap. The approach also includes supporting policy researchers with grants and working with government agencies to ensure that community developers get first crack at properties sold off by the federal government.
“Our best work is when we’re really trying to move the market and we’re trying to move policy that changes the game,” she said. “You need to change markets. You need to change behaviors. And you need to change policy.”
