As a journalist, I report on new ways that communities that lack access to capital are attracting investments in cities and towns across America. So I was intrigued when I read news reports about the Ford Foundation and four other philanthropies increasing the annual amount they distribute by borrowing $1.7 billion, which Ford got started by selling $1 billion in bonds at the end of last month.
It is an unprecedented move for foundations to fund grant making by borrowing, and many heralded the move as breaking new ground in response to calls for foundations to increase grant making to deal with the pandemic.
But this move should be reported in the full context of who benefits, because it’s not about just the potential grantees and the people they serve. There’s also the question of how these foundations decided it was better to borrow rather than taking the money from their endowments, especially by pulling dollars from extractive, potentially predatory, and racist investment vehicles.
So far I have found too little reported about who decided what actions foundations should take and how much they considered other options. This omission is critical to address because it matters when more people from different backgrounds wield power over money, and it matters when everyone, including outside observers, understands the full range of options for what people and institutions can do with invested dollars.
For example, when I reported on the Boston Ujima Project, Hope Credit Union, and the East Bay Permanent Real Estate Cooperative, I found people often marginalized from capital now setting their own terms for raising capital and attracting an increasing number of investors who are leaving behind arcane notions of market-rate versus concessionary returns. When a worker-owned coffee shop cooperative and a community land trust tapped private investors to buy a building, for example, they let investors pick an interest rate between zero and 4 percent; half of the investors chose zero. These were stories driven by changing who is in the room and expanding the shared understanding of what the options are.
Who’s Influencing Decisions
So, let’s look at what we know about who gets to be in the room when foundations like Ford. MacArthur, Kellogg, Doris Duke, and Mellon made the decisions about how to spend and invest their endowments, and understand what their options were.
One thing we know is that foundation boards are very white, and very male, as the Chronicle documented in a study of the race, class, and educational background of trustees at the 20 wealthiest foundations. At the next level, the senior leadership of foundations are also very white and mostly male.
Beyond foundation board members and staff are financial advisers and asset managers who are engaged in the discussion about how much to tap from endowments. And they also tend to be mostly white and mostly male — as the Knight Foundation found in a study it commissioned.
It’s also worth examining the incentives of those financial advisers and asset managers. They get paid in part based on how much of any given client’s assets they are managing. If you are privileged enough to have a 401(k), 403(b), or IRA, you can look for yourself to see the fees you are paying to the asset managers who invest your retirement savings on your behalf. Those annual fees are typically some percentage of your assets invested with each manager. A peer-reviewed industry study has documented how asset-manager fees, calculated in this way, have grown steadily over the past several decades.
We can see, then, that conversations about whether foundations should dig deeper into their endowments are largely dominated by white men, some of whom have an economic interest in keeping endowment levels where they are. And most foundations are choosing not to spend more than the legally required minimum of 5 percent of their endowments during unprecedented times.
Diversity in Top Leadership
To its credit, Ford has been making changes to who gets to be in its room. Its CEO, Darren Walker, is Black. Nine out of 14 members of its Board of Trustees are people of color, representing “a diverse, and international, set of backgrounds and experiences — from leaders in technology, finance, medicine, and academe to advocacy and grassroots organizations, and coalitions that are at the frontlines of the Covid-19 crisis and fighting social injustice,” Paul Silva, director of strategic communications at Ford, told me in an email. Silva also points out that two-thirds of Ford Foundation’s senior leaders are people of color.
It is also worth noting that the foundations that joined forces with Ford last week have a different CEO profile than most foundations. Walker was joined by two Black female CEOs — Elizabeth Alexander of Mellon and La June Montgomery Tabron of Kellogg. (The other two are white men: John Palfrey of MacArthur and Edward Henry of Doris Duke.)
Ford and the others joining it in this unprecedented move have made important steps toward more diverse boards and senior leadership. But the fact remains, the decision to take out long-term debt to finance a short-term increase in grants still preserves endowments and thus the fees paid to their mostly white-male-led asset-management firms.
Ford, while it is taking steps to diversify the firms that manage its endowment, is no exception to the overall pattern so far. Others are far ahead — minority- and women-led investment firms already manage 35 percent of the Knight Foundation’s $2.2 billion endowment as part of the philanthropy’s push to diversify investment managers of all big grant makers.
Examining the Investments
Another piece missing from the conversation so far is knowing exactly where these foundations have their endowments invested. That is important because the foundations that borrow to increase grant making put themselves under pressure to make sure their investment returns cover the cost of the debt they incurred on top of spending on their conventional operations and grants.
The stakes are biggest for Ford, which has decided to issue $1 billion in bonds.
Every foundation, including Ford, is required to disclose its tax returns, so that is one place to look. Ford also makes its audited financials available for anyone to see, helping in the analysis.
Out of its roughly $13 billion investment portfolio, according to its most recent 990 PF tax return available, Ford had $2.2 billion invested in venture-capital firms. The partners in those firms are predominantly white men, as has been widely documented, and they invest predominantly in start-ups founded by other white men. Ford also has about a billion dollars invested with private-equity firms, which have been connected with the demise of so many important industries, including health care, flagship retail brands, and local media.
These are just some of the investments Ford is now going to be counting on to pay back its $1 billion in bonds. And these are investments clearly at odds with Ford’s grant-making mission to promote equality.
It is not apparent in public disclosures which venture-capital firms and private-equity firms are managing Ford’s assets and, therefore, what they are doing with those dollars. Ford’s 990 PF doesn’t say. But other foundations, like the Knight Foundation, list explicitly on their 990s which private-equity and venture-capital firms and funds they’ve invested with and in what amounts.
“As a general practice, and due to some confidentiality obligations, Ford does not disclose names of all fund managers in our investment portfolio,” Ford’s Silva says — this general practice is also why it is impossible to verify how much of Ford’s endowment is managed by minority- or women-owned financial firms.
Ford in 2017 did announce a $1 billion commitment to mission-related investing, so some of its venture-capital and private-equity investments are in line with its grant-making work. According to Silva, Ford currently has $173.9 million in mission-related investments, of which $99 million is under the management of minority- or women-owned financial firms. But the fact remains, nearly all of the $2.2 billion Ford has invested in venture capital and $1 billion invested in private equity is not mission related.
The Divestment Option?
Could Ford and other foundations have obtained $1.7 billion in grant-making capacity by taking early distributions from any venture-capital and private-equity investments?
It would have likely been difficult to negotiate early distributions from private-equity or venture-capital funds. They’re not very liquid investments, meaning it is not as easy as selling off stocks or bonds. But as many financial experts have pointed out, borrowing is cheap right now for those with big balance sheets. For big clients like these foundations, private-equity or venture-capital funds might have been able to arrange an early distribution by taking out cheap loans and divesting Ford and others from their investor pools.
Taking that step would have accomplished two goals: More money would have been available to make grants, and fewer foundation dollars would be invested in extractive, potentially predatory, and racist investment vehicles. But Ford and the others made a different choice.
“Issuing the [$1 billion in bonds] was deemed the wisest move for the foundation to increase our support to urgent social justice work, given the volatile markets and loss of endowment value,” Silva says.
The proceeds from selling those bonds and preserving endowments may or may not end up funding work that helps break down the structures of white supremacy that got the United States to where it is today. Maybe it will be worth protecting the foundation’s future grant-making capacity. We won’t know for sure, though, until Ford announces who is getting the extra grants the borrowing is enabling.
But, with or without borrowing to increase current grant making, it is already a fact that preserving foundation endowments protects the fees paid to almost entirely white, male financial advisers and asset managers who invest foundation endowments in ways that clearly exacerbate structural inequality.
One more piece of the picture can’t yet be seen. A total of 114 investors bought slices of that $1 billion, and they will now be repaid with interest over the next 30 and 50 years. So that $1 billion plus interest now represent a slice of wealth for those 114 investors. Ford says many of those investors were specifically interested in the social impact of these bond investments. But Ford and its bond underwriters are bound by standard investor confidentiality agreements not to disclose more specifics about who those 114 investors are, though the investors are free to come forth themselves to say who they are.