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The American F.B. Heron Foundation has published a case study of its mission-related investment strategy, sharing its experiences and lessons learned over the last 10 years.
Heron’s experience demonstrates that competitive investment returns can be achieved even when incorporating mission-related investments into an overall portfolio and asset allocation.
“The board views its fiduciary duty as getting the most social impact possible for each dollar in its endowment. Happily, aggressive mission-related investing policies have not hindered our ability to achieve total investment returns in the second quartile for the past several years,” says William M. Dietel, Chair of the Foundation.
One of the first steps was to transfer some of the Foundation’s actively managed investments into index and enhanced index funds. This reduced investment-management fees but performance has not suffered.
Additionally, Heron decided to build internal management capacity, bringing certain investment functions in-house. It also found allies among the large commercial banks. Motivated by the federal Community Reinvestment Act, these banks often invested alongside foundations on a below-market basis in non-profit, community-development financial institutions.
At the same time, Heron’s programme officers began a fundamentally different dialogue about community-development finance with grantee organisations. Knowing the grantees has made a huge difference, improving the quality of the underwriting and adding trust and understanding to the process. Today, nearly 75% of the Foundation’s PRIs are in groups with which Heron has or has had an established relationship.
As well as making PRIs in known organisations, Heron is also reaching out to build its market-rate portfolio of mission-related investments in three main ways:
1. Conducting active outreach efforts to identify mission-related investment opportunities within various asset classes.
2. Creatively adapting traditional investment vehicles and asset managers to mission goals.
3. Researching and developing new investment vehicles. This has included funding research that led to the creation of the Community Investment Index.
► Download the full case study, Expanding Philanthropy: Mission-Related Investing at the F.B. Heron Foundation
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