Kristen: Some members have been floating around the idea of aligning our foundation’s investment portfolio with our foundation’s mission. My concern is if we do that, then we’ll be imposing constraints on our portfolio and thereby potentially reducing our overall returns. Do you all have any data to prove otherwise?
Ron: Jacob, I know you released a study recently for the Wharton School Impact Initiative that addresses this issue.
Jacob: Julia, you’re absolutely right to be skeptical, because for a long time, this impact investing idea that you could invest in both social impact alongside financial return had very little data behind it. What it had were anecdotes, a lot of stories. Unfortunately, the plural of anecdote is not data. We’ve have heroic stories, very few stories about failures. But what the WSII has been doing for the last 20 months is actually digging into actual cash flows from actual impact investing funds. So we’ve been gathering up these cash flows, and we took these cash flows and took an index like the Russell 2000 and compared cash flows from impact investing funds to the Russell 2000, and they came out quite similar. I guess the message is in a certain segment of the impact investing world where funds are trying to make market rate returns; if that’s what you want, it might actually be quite possible. It’s worth a deeper look now.
Ron: Jacob, how do you think the foundation can gain more confidence in their investment results?
Jacob: Let’s accept this idea that we are going to move some of the investment portfolio into impact. The first thing you have to do is make sure that anyone you invest in is actually reporting. And there are reporting standards now. There’s something called the Global Impact Investing Reporting System. There are others. It’s kind of the state of the art, though. And that’s a way that you can get a report out alongside your quarterly results from these funds that you’re going to invest in, and you’re going to get a report out on impact as well. And actually reading those things and discussing them with other family members is probably one of the most important things you can do. And then you can actually call up some of these fund managers and say, hey, I’m not happy. So there are ways to express where you’d like the impact to go, and believe it or not, fund managers will listen quite carefully.
Ron: Do you have an opinion on the lack of standardization in the reporting space?
Jacob: I do. The one thing that you have to do is, you have to demand that everyone values their portfolio. So in the impact world, there are still a lot of funds out there that don’t, that don’t even financially value their portfolio. So I think as an investor, what you have to say is, look, I’m not coming into this investment at all unless you’re going to value the portfolio over time so I can understand how much it’s worth at any other point other than the day you invest and 10 years later when you get your money back.