Wonderful reflections from the Chief Investment Officer of the Doris Duke Foundation, Leena Bhutta in Institutional Investor recently Is Values-Oriented Investing Dead? In it Leena notes the pressures and complexities that can be placed on values-based investors, as '…mission-driven investment …. [gets] maligned from different directions…' noting political pressures, legal campaigns, and 'very public social media meltdowns'. However, she notes, 'divorcing capital management from societal challenges, whether climate change or systemic inequity, seems shortsighted and unsustainable'. With these pressures, how is Doris Duke Foundation (DDF) is going deeper to align their missions and values with their capital?
Important to note that DDF is an endowment, and a large one at approximately US$2.6 billion, which gives them more flexibility from a financial and legal perspective than your retirement plan or your smaller endowment or foundation supporting your organization and its activities. Nevertheless, there are lessons in their response to the 'pressures and complexities'.
For those who’ve taken our Faithful Finance course, you know we start with your values and mission. While DDF is popularly known for its funding and shepherding of medical research with a focus on children and sub-Saharan Africa, they’re also involved with arts, environmental and US Muslim initiatives in the US.
In 2019, DDF committed to dedicating 10% of its assets over 10 years to 'mission-aligned [impact] investing', which at the time meant investing in both “market rate” and “concessionary” impact funds. More recently, they’ve refined this approach to consider the best method – investment, grant or some blend, to fund a mission-aligned activity. For some activities, market rate impact investments from the endowment assets are most appropriate, for others, traditional grant making from the endowment is more appropriate. To give an example of the former, in their medical research area the Foundation focuses 'in the direction of maximizing support for scientists who are pursuing creative, innovative research with high potential to improve human health'. DDF found this focus aligns well with available impact investments:
[Investing in] life sciences venture firms that focus on very early-stage ideas and incubating companies around those research ideas until they reach some commercial potential is an example of an investment out of the endowment that has the potential of achieving both high returns and high-impact and commercial-scale cures for disease.
Overall, their experience in pursuit of mission aligned funding has revealed three lessons:
Suitable investment returns in pursuit of “social good” mission objectives [e.g., arts] are possible “but not universal.” Therefore, they don’t force impact allocations or investments in areas where they don’t see associated returns.
They are cautious with concessionary capital investments, '…rigorous questions have to be asked and answered … often, [this] ‘middle approach,’ i.e., hazier impact objectives and below-market returns, is not an optimal use of either endowment [investment] capital or programmatic budgets.'
They don’t need a 10% cap or target on impact investments, 'instead, these mission-aligned investments should be subject to the same [endowment] portfolio management constraints that any other investment would be subject to'.
The impact of implementing these lessons has been to blend their investment research with their grant-making research and activity such that 'everyone working at the foundation becomes an impact investor'. In the end, Leena encourages organizations to stay with their mission and values as guides for all their funding activities, including investments 'for organizations with multidecade (and longer) time horizons and timeless values that are central to their purpose, falling prey to the news cycle, and the noise … is a risk none of us can afford'.