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Kresge board commits $350 million to social investments

Social Investment Practice

The Kresge Foundation Board of Trustees approved an ambitious plan to invest $350 million by 2020 through the foundation’s Social Investment Practice, making clear that using a variety of investment tools is central to bringing enhanced opportunities to low-income people in America’s cities.

The $350 million represents approximately 10 percent of the foundation’s corpus as of 2015.

As the foundation expands its use of these types of investments, it will continue to align them with its six program areas — Arts & Culture, Education, Environment, Health, Human Services and Community Development in Detroit — and make nearly $140 million in grants each year. The new funds are projected to be generated through investment returns on Kresge’s $3.5 billion endowment over the next five years.

Kresge’s Social Investment Practice uses financial tools including debt, equity, guarantees and deposits to make investments that further the foundation’s mission and programmatic priorities. The foundation began exploring these tools in 2007, but to date has made social-investment budget and spending decisions on an annual basis.

“Today’s decision by the board signals a significant inflection point for our foundation,” said Kresge Trustee Maria Otero, a former under secretary for the State Department and the head of Kresge’s Social Investment Committee. “While we have used these financial tools for several years, this commitment embeds that practice into the fiber of how we work for social change. These investments, particularly those made in conjunction with grants, will accelerate the work of our program teams and stretch much further than their total, bringing about better opportunities, faster, for underserved people across America.”

Kresge’s commitment comes with a goal to attract an additional $1 billion from other investors to accelerate positive impact on issues facing cities and low-income people.

“The language of philanthropy is shifting, from grantmaking and social investing being seen as two disparate strands of investment, to a new model, where all types of social funding work in an integrated way toward the same end. That’s the new way of The Kresge Foundation,” said President and CEO Rip Rapson. “This solidifies the notion that we, as a foundation, cannot solve complex social programs through traditional grantmaking alone. By defining this funding pool, we are extending our hand to for-profit and nonprofit partners alike and are asking them to join us on the front lines to use more innovative approaches to this work.”

The new $350 million pool will include both program-related investments (PRIs) and mission-related investments (MRIs). It also includes $105 million in commitments made through the end of 2015 to projects that range from expanding access to health care and affordable housing for low-income residents to investments in technology-based services that extend the reach of the social safety net.

MRIs are market-rate investments from the foundation’s corpus that align with Kresge’s mission and values. PRIs are low-interest loans and other financial instruments, including guarantees, that allow organizations to access capital from other investors, test new approaches and scale promising solutions. All returns will be funneled back into the foundation’s funding pool for reinvestment.

A significant number of Kresge’s social investments will be made through guarantees, which are commitments from the foundation’s balance sheet that unlock capital from other investors. Kresge has intentionally sought to use guarantees – a tool that has had more limited use by other philanthropic investors – to mitigate risks that keep investors away.  

“We feel that guarantees have been underutilized in today’s social investing climate,” said Kimberlee R. Cornett, managing director of Kresge’s Social Investment Practice. “But the social rewards of these mildly riskier investments have the potential to attract a much wider range of partners and investors who want to make capital available for low-income people in America’s cities.”

A recent example of the way Kresge uses a variety of funding tools to bring in other partners came with this week’s announcement of the Strong Families Fund. The $70 million fund pairs affordable housing with on-site social-service coordination in the nation’s largest pilot pay-for-performance project. Kresge’s committed $6 million through its Social Investment Practice and paired it with $1.25 million in grant funding from its Human Services Program. This attracted more than $60 million to the project from numerous other partners, including KeyBank, Goldman Sachs and the Robert Wood Johnson Foundation.

“The Strong Families Fund is a great example of how a variety of funding methods work together to attract partners and create large-scale impact,” Cornett said.

The foundation has a four-person team dedicated to its Social Investment Practice and will soon recruit two new social investment officers to support the practice as its work grows.