The Tesla S accelerates from zero to 60 in less than two-and-a-half seconds. Its makers boast that its electric motor and lush interior provide the “sound dynamics of a recording studio.”
Fifteen years ago, when the Ford Foundation invested $2 million in the Bay Area Equity Fund, a Tesla backer, it was interested in different specs. Ford believed in the mission of the fund and its successor, DBL Partners: to place bets on companies that help the environment and create jobs in low-income communities.
Today, Tesla produces about 84,000 cars annually and employs more than 6,000 people in Fremont, Calif., a town hit hard by the shuttering of a Toyota factory in 2009. How did Ford do? The foundation declined to provide details, but estimates suggest the fund’s value grew 24 percent, while its investment in Tesla alone increased more than tenfold.
The bet on DBL was a program-related investment. In other words, Ford used money from its program budget to invest in a for-profit investment fund that works to achieve social or environmental goals. By law, such investments can count toward the charitable distributions the foundation is required to make, but they’re also intended to net financial returns.
Innovative nonprofits and foundations are turning to impact investing to attract commercial capital to their causes. But some observers worry the investments that blend social and financial returns could change the way donors think about charitable giving.
Ford’s experience with companies like Tesla helped it prepare for an even larger effort. Over the next 10 years, the foundation plans to place $1 billion of its $12 billion endowment in investments intended to help society. Its first “mission-related investments,” or MRIs, will go toward affordable-housing ventures and companies that work to increase access to financial services in emerging markets.
Foundations use their endowments, not their program budgets, to make mission-related investments. “We have to demonstrate sustained, measurable financial impact at scale, not at $200 million or $300 million but at a billion or more, over time,” says Darren Walker, Ford’s president.
Ford won’t expect its mission investments to net the same dollars as its traditional investments. For instance, its affordable-housing portfolio might yield a return lower than investments in, say, luxury housing. But if it creates 5,000 apartments for low-income workers, “that’s a tremendous return,” Mr. Walker says.
There are limited investment opportunities for a giant like Ford looking for a diversified mission-based portfolio, according to Christine Looney, who manages the foundation’s $280 million program-related investment fund.
To help expand the pipeline of investments, Ford makes about $6 million in grants each year to organizations like the Mission Investors Exchange, which works to increase the number of impact-investment opportunities. Ford is also making changes to its program-related investments; among other things, it will emphasize providing loan guarantees for financial lenders that offer credit to early-stage social enterprises.
In addition, the foundation hopes to place more program investments with asset managers who are women, minorities, or newly minted pros. This move is in keeping with Ford’s goal of promoting diversity and inclusion, Ms. Looney says, and the new players might offer innovative ways of looking at social investing.
Ford says it isn’t necessarily building a farm team that can get the experience to handle its bigger endowment portfolio. But it believes a more diverse stable of asset managers will yield more impact-investment options. “We want more products in the market that align with our values and program goals, and right now there aren’t many,” Ms. Looney says. “Within our MRI portfolio, we’re looking for managers that have a track record.”
