By Avi Deutsch
The Max M. & Marjorie S. Fisher Foundation is reimagining the role of philanthropic foundations, and people are starting to notice.
“Foundations can be so much more than private investment houses that give away 5% of their assets each year. We have the opportunity to put a larger portion of our assets to work for impact.” says Phillip Fisher, the Fisher Foundation’s Vice Chair. “There is a deep connection with tzedakah here. If philanthropy is truly justice work (the direct translation of tzedakah), then we need to use all the tools we can to repair the world (tikkun olam). I’m passionate about using both for-profit and for-impact strategies to accelerate positive community change.”
Acting on this inspiration, in 2012 the Fisher Foundation launched an attempt to get large Jewish foundations to begin aligning their assets with their missions. In collaboration with the Nathan Cummings Foundation, the campaign called for Jewish foundations to earmark just 1.8% (chai) of their assets as a first step towards mission-aligned investments.
“We truly felt we had to act our way into this new way of thinking, instead of trying to think our way into it. Starting with a very modest 1.8% carve-out seemed like a reasonable way to jump in and for us to learn together,” says Doug Bitonti Stewart, the Fisher Foundation’s Executive Director. Although other foundations expressed some interest in learning more about the effort, no other foundation joined the initiative.
While Jewish foundations have been slow to act, large non-sectarian foundations and traditional investors are leading the charge on impact investing, or investing for financial returns alongside measurable social, and/or environmental returns. Large foundations, including Rockefeller Foundation, W. K. Kellogg Foundation, Bill & Melinda Gates Foundation, Kresge Foundation, Clinton Foundation, and most recently, Ford Foundation, have created a powerful track record causing other, smaller foundations to follow suit.
The Fisher Foundation’s inspiration came from another leader in this movement, and one of the first private foundations to go ‘all in’ and pledge 100% mission-asset alignment, F.B. Heron Foundation. (For educational purposes, their entire portfolio is available on their website.) The idea that a foundation could use its entire portfolio to pursue its mission, in addition to the 5% distributed annually through grants, resonated deeply with Phillip Fisher.
Not deterred by other foundations’ reluctance, the Fisher Foundation proceeded with their own commitment to align 1.8% of their total assets, or $4.2 million, with their mission, using two strategies. The first, Program Related Investments (PRIs), are made from the foundation’s program budget, which is traditionally allocated to grants.
The second strategy, known as Mission Related Investments (MRIs), involves investments made from a foundation’s endowment, the 95% of assets not distributed annually. While PRIs are usually expected to achieve below risk-adjusted market-rate returns, MRIs must be expected to perform on par, or only slightly below, traditional investments in order to meet fiduciary standards.
Employing a combination of these strategies, the Fisher Foundation began successfully deploying capital to further the Foundation’s work in Detroit and the global Jewish community.
Investments spanned loans to Hebrew Free Loan, and investments into variety of Detroit focused impact funds, including the Michigan Good Food Fund in partnership with W.K. Kellogg Foundation (see the full list of the Foundation’s impact investments).
By 2015, with a number of successful investments under their belt, the Foundation was ready to increase the percentage of assets allocated to mission investing. The new target was set at 3.6% of the Foundation’s assets, or $10 million. However, one important goal remained unachieved – making an impact investment in Israel.
The Fisher Foundation has long had a commitment to at-risk youth in Israel. So when in 2014 they met Allan Barkat, the Founder and Chairman of Dualis, an Israeli impact fund investing in social enterprises, (many of which employ at-risk youth in the service industry) an impact investment into Dualis seemed like a natural partnership. There was only one problem – no one they spoke to had ever made a PRI from the US into Israel.
Thus began a series of conversations with potential intermediaries and advisors, including donor-advised fund managers, private equity firms, Jewish philanthropic organizations, and philanthropy advisors. After two years of conversations, it turned out that the easiest way for the Foundation to make an impact investment into Dualis was by doing just that – writing a check directly to the fund using an expenditure responsibility agreement- a legal tool that allows foundations to make program investments into mission aligned organizations internationally.
The investment was concluded in late 2016 when the Fisher Foundation made a $250,000, 7-year loan, with a 3% interest rate, to Dualis. While the investment was not made through an intermediary, the Foundation is still intent on sharing what they’ve learned to help other Jewish foundations enter the impact investing space. To encourage collaboration, the Foundation helped launch an impact investing peer learning network which convenes quarterly at the Jewish Funders Network (JFN) – for funders interested in impact investing.
While progress on impact investing has been modest (more on that here), the past several years have seen a steady growth in both interest and actual investments made by Jewish funders. Increasingly, these are not limited to Israel. For example, Simone Friedman, from Emanuel J. Friedman (EJF) Philanthropies, is promoting better treatment for animals within the kosher meat industry by providing loans to kosher meat companies to help build supply chains for humanely raised beef.
The increasing demand for impact investments has not gone unnoticed. For the first time, this year the annual Jewish Funders Network (JFN) Conference – the largest annual convening of Jewish funders and philanthropists – featured an impact investing track developed in partnership with LAVAN.
Despite the slow start, impact investing is definitely showing signs of catching on in the Jewish world. “Mission-aligned investing is going to be an increasingly important tool for our shared work with partners; both for-profit and for impact,” says Bitonti Stewart. “Progress is inevitable, and it’s just a question of what leadership role Jewish foundations want to play in this exciting evolution.”
Avi Deutsch is the Co-founder and CEO of LAVAN, a not-for-profit organization advancing the ecosystem of impact investing with Jewish values. LAVAN educates the next generation of Jewish leadership, builds local communities of impact investors, and facilitates meaningful dialogue at the nexus of financial decisions and Jewish values.
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Your advocacy for Impact Investing is certainly a step in the right direction. But. I’d like to challenge you to aim higher…
Impact investing is in vogue, as are attempts to shoe-horn traditional philanthropy into the impact investing category. It is for this reason that funders with the risk appetite to explore Impact Investing need to do exactly that- actively engage in thought leadership from the front lines.
To clarify; after a brief review of your list of Impact Investments, it’s clear that these are mostly venture philanthropy or traditional charity- this is by no means negative, there is no value judgement associated with investing in either or both of these- but, if, and this seems to be the case, that you seek to participate at the vanguard of Jewish Impact Investing, it is indeed underwhelming.
Why do I say this?
My colleagues, particularly in India, have spent the last decade immersed in Impact Investing, and only now are leveraging that experience by initiating and backing Impact Investing Funds. But this is only after experiencing the reality with dozens of companies. Building investing pipelines, due dilligencing, negotiating term sheets, sitting on company boards, dealing with the up’s and down’s involved, which includes successfully exiting investments (which takes on average over 5 years), as well as suffering through failed investments.
This is what I would term “real Impact Investing”, and I believe this is exactly what you would like to be involved in, and are advocating for to potential Jewish Impact Investors. By going directly to fund other funds, aggregators, etc. as per your list of investments, you are not building the muscle necessary to succeed in Impact Investing- and arguably your endowments could be better utilized for traditional grant making.
So my challenge to you is this:
Continue dispersing your 1.8% to similar investments as in your existing portfolio, BUT, with your additional 1.8%, I challenge you to use these funds for direct PRIs. Dabble with some debt instruments, but push yourselves to make equity investments, you can play around with convertible notes, but you will learn less- so I encourage you to be more aggressive- source your own deal flow, work through the term sheets together with the entrepreneurs, prepare for and attend board meetings, and ride the PRI rollercoaster.
I am almost certain that your initial investments will fail, but I’m equally certain that if you approach the endeavor with the intention of maximizing your learnings and in each subsequent investment you apply the lessons learned prior- then, your hard-earned battle scars will serve you well. They will empower you to advocate for Impact Investment from a position of intimate visceral knowledge and expertise. There will always be follow-on funders with lower risk appetites to invest in proven solutions and Impact Funds- which is exactly why your efforts will be best exerted on de-risking the sector to enable such follow-on funding
Good luck…