by James A. Bacon

For many years, Richmond’s Cabell Foundation conducted business much as it had since its formation in 1957. Investing the endowment for income, the board took out 5% per year to distribute in grants to worthy causes. In 2011, that amounted to roughly $4.3 million directly for some two to three dozen non-profits around Richmond and Virginia.

More recently, the board began thinking about how to get more bang for the buck, Charles L. Cabell, immediate past president of the foundation, told a gathering of mostly Virginia foundations and non-profits at the Virginia Museum of Fine Arts. The board tried giving matching grants and last-dollar grants, and it organized a Richmond funders’ group to keep major philanthropists appraised of each others’ activities.

A few years ago, the board also became acquainted with the concept of “mission” investments, also referred to as “social” investments or “impact” investments. As an alternative to putting the entire portfolio in stocks, bonds and other typical instruments, the idea was to invest in non-profit enterprises in order to leverage the impact of the funds.

“In typical Richmond fashion,” said Cabell, a Richmond attorney, “we chewed on it for two or three years.” Finally, he says, the Cabell Foundation found the right partner — Virginia Community Capital (VCC), a non-profit, community development financial institution and bank. By purchasing $1 million of preferred stock in VCC’s banking business, the foundation generated a modest yet respectable 4% annual payout. But the bank was able to leverage that million dollars into $8 million in capital that could be lent to create affordable housing, finance small businesses or underwrite Main Street renovations in communities around the state.

“We believe this is something that other foundations might look at,” Cabell told the assembled foundation executive and non-profit managers Wednesday. “It’s exciting for us. If it works for us, I think it will work for you.”

Mission investing has taken off in the United States since the 2007-2008  recession, as foundations have sought ways to offset the impact of their shrinking portfolios and diminished giving capabilities. While foundations made an estimated $46 billion in grants in 2010, they held assets totaling more than $600 billion that could be doing more. Of the U.S. foundations participating in mission investments, one of four have committed more than 50% of their assets to mission-related investments. But half have barely dipped their toes, risking less than five percent.

Many non-profits are not set up to benefit from mission investing, but VCC is. The organization was set up in the early 2000s when Governor Mark Warner consolidated and privatized two state loan funds with $15 million in assets. Today, by applying for federal grants, accepting foundation investors and reinvesting income, VCC has grown its asset base to $85 million, said President Jane Henderson.

VCC has more than 122 loans outstanding, totaling $60.5 million, that underwrite projects relating to affordable housing, health care, food insecurity and small business that typically would have difficulty getting financing from conventional sources. VCC also provides technical assistance to communities and non-profits seeking to secure government grants and private capital.

VCC finds solutions by blending government money, foundation money and private capital. “We don’t make grants,” said Henderson. “We’re lenders. We’re advisors.”

The Jessie Ball duPont Fund, which concentrates its lending in Delaware, Virginia and Florida, invested $1.5 million with VCC, said executive Mark Constantine. Before diving in to mission investing, the foundation had to address a number of legal, investing and accounting issues. It also had to give some thought about how to its investments with its grant-making mission and how to monitor the investment’s economic and social impact.

The decision to move into mission investing is not one to make lightly, said Tracy Kartye, who runs the $100 million social investing program for the Annie E. Casey Foundation. “The investments are complex, they have legal fees and transaction costs, and they require skill sets that foundations do not have.” But the foundation’s track record has been “quite good.”

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One response to “The Dish on Mission Investing”

  1. Here’s my kind of endowment:

    it was a novel and innovative way to take a bad situation and turn it into something good.

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