Private foundations, in an effort to maximize their social impact, are increasingly striving to align their investments with their missions, according to Page Eberstadt Snow, chief philanthropic officer of Foundation Source, the private foundation outsourcing firm, and president of Foundation Source Advisors. This trend, in turn, has important implications for advisors to high-net-worth individuals and families with foundations.
In a recent telephone interview with AdvisorOne, Snow (left) said her firm’s clients historically have focused their philanthropy on giving away 5% a year as required by the IRS.
Now, she said, “there’s a new trend, where people who have foundations are looking at all the assets in the foundation and thinking, ‘How are we going to exploit those assets toward our mission?’ So if they’re focused on the environment or something to do with policy, they may very often fund something on the investment side, which is called “impact investing.”
Foundation Source manages the administrative and compliance aspects of private foundations for high-net-worth individuals, often working with the advisors to these people.
Snow said the firm has clients who may be interested in disease or health issues for which their foundations provide not-for-profit funding. At the same time, the foundation is investing in a pharmaceutical endeavor where there is a drug in development to treat a disease on which large pharmaceutical companies are not focused. “They use the investment side of the foundation to focus on things that they might not be able to fund through their charitable side,” she said.
“In your portfolio allocation, just as you might invest a small amount in emerging markets, you might invest a certain amount in mission-related investments, meaning investments that align with your mission,” Snow said. “This is going to be a tsunami. This is going to be a huge wave; I can guarantee it.”
And advisors need to understand it.
Snow has some advice: “I’m telling advisors that when we have presented this idea to our clients in webinars or just one-on-one conversations, the first question they ask us is, ‘Can you recommend an advisor that’s up to date on these mission-related investments?’ We don’t recommend financial advisors, but I can tell you it’s one of the criteria against which clients are making decisions about whom to use as advisors.”
Those who are up to date on mission-related investments and can advise their clients on it are going to be a step ahead, she said.