Four years ago, I sat in on my first meeting with AJL Foundation’s investment advisors to discuss our portfolio. I was fresh out of a 10-year career in marketing, working for agencies in Denver, Los Angeles and Madrid specializing in all facets of marketing for everything from startups to Fortune 500 companies. I had a whole lot of marketing experience and very little investment experience - and if I’m completely honest - had just recently discovered the field of philanthropy even existed. I grew up upper middle class, and while it’s certainly privileged, it’s not typically the level of wealth that results in the creation of a family foundation. But here I was – the newly-hired Executive Director (staff of one) of a new private foundation, sitting at a large, fancy conference table in a large, fancy Downtown office building across from two fancy wealth advisors in suits, trying to wrap my head around terms like Monte Carlo simulations, asset allocations and equity strategies, without looking lost or intimidated. But the part of the conversation I did understand went a little something like this:
Financial advisors: “A foundation is required to grant 5% of it’s assets every year – the other 95% is traditionally invested.”
Me: “Wait a minute. So, if I’m understanding this correctly, our mission only applies to 5% of our assets? We don’t have to even know what the social and environmental impacts of the 95% are, let alone hold ourselves accountable to what our investments are doing in the world – positive or negative?”
Financial advisors: “Yes, that’s correct.”
Me: “So, if we aren’t evaluating the social impacts of our “traditional” investments, then it’s possible that we are pretending to fix with $5 what we are actually breaking with $95?”
Financial advisors: Silence.
Me (again, fresh off a career in marketing): “Ok, so, the only analogy I can think of is this. If a company sells a product that is labeled organic and only 5% of it’s ingredients are organic, that is green washing. If we are touting to the world that we are mission-driven, but only 5% of our assets actually go toward our mission, how are we doing anything but charity washing?”
Financial advisors: Silence.
Me: “Is this really how philanthropy operates?”
Fast forward four years, and that conversation propelled AJL down the road to full mission-alignment across our portfolio. The road was bumpy. We, the board and staff, had to start with the internal work first – we had to come together as a group to commit to holding both impact and financial return objectives as equal across our entire portfolio. This meant deep and dynamic conversations about capitalism, profit, risk, social injustices, fiduciary duty, accountability, investment beliefs and values, and more. We had to educate ourselves on impact investing – a rapidly evolving field. We had to figure out where we needed to go and find the right partners to help get us there.
We partnered with a nonprofit academic center that identifies, trains, and activates individuals and organizations to become impact investors, to help us evaluate our existing financial advisor for their impact capabilities. Through that assessment, we also found that we had been modeled incorrectly from the beginning resulting in portfolio underperformance of about $1.4M over 7 years. Additionally, we discovered we had been overcharged by about 30% (around $230,000) in advisor fees as compared to industry standards and peer foundations. While this all sounds terrible – I’m willing to put in writing my belief that this is more rule than exception, but many folks are either hesitant or aren’t sure how to assess more deeply.
Recognizing a clear mismatch between AJL and our financial advisor, we went through a nationwide RFP process to find an impact-oriented advisor, a process that revealed an industry full of financial folks with varying ideas, expertise and strategies around impact (not to mention a wide range of fees!) Ultimately, we selected a firm that aligned with our financial and impact beliefs and goals, and a year later, are fully mission-aligned across our portfolio, with goals to go even deeper on impact. There’s more good news - it turns out that investing in people and the planet is also great for profit, and we are currently meeting both our financial and impact goals. But it’s not perfect, there are gaps in data, gaps in evaluation, and gaps in investment opportunities and we have to address those. That’s next.
In 2020, AJL made the choice to go public with our portfolio on our website for two reasons. The first is in the spirit of transparency and accountability to the communities we serve, and the second is to contribute our learnings to the field and encourage dialogue among peer foundations regarding impact investing commitments, learning, strategies and performance. Talking about the money is hard but silence guarantees we’ll make no progress. We have to talk about the money, and not just talk about it – but take accountability for it.
We are an open book and happy to answer any questions, share resources, and learn about the various strategies peer foundations are exploring or have implemented. We are candidly sharing our journey – the ups and downs – and look forward to learning alongside folks who are on their own impact investing paths and willing to hold themselves accountable.
This post is the first in a series about AJL's journey to impact investing. Watch for additional posts coming soon:
- Part 2: How to Evaluate your Financial Advisor
- Part 3: How to Select an Impact-Oriented Advisor (and our findings from the field)
- Part 4: Portfolio-wide Mission Alignment: Strategies and Objectives
- Part 5: Timeline and Resources (posted in Dec 2019 but updated regularly)
- Part 6: Diversity and Finance
- Part 7: What's Next?
In the meantime, for more resources and information, view the following:
- AJL Foundation’s Portfolio
- AJL Foundation’s Journey to Impact Investing: Timeline and Resources
- AJL Foundation's Investment Policy Statement
- AJL Foundation's Expression of Interest for Impact-Oriented Investment Advisor (September 2018)
- AJL Foundation's Request for Proposal for Impact-Oriented Investment Advisor (December 2018)
Please feel free to reach out to Kristi Petrie, Executive Director, at firstname.lastname@example.org with any questions or feedback – we’d love to hear from you!