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New Bridgespan Group report explores untapped potential of impact investing among foundations

Social Investment Practice

Kresge-supported report finds philanthropies could amplify impact by using multiple tools

The Bridgespan Group, supported by a grant from The Kresge Foundation, today released a report on the various impact investing tools foundations can employ to expand the scale and scope of their work beyond what is possible with grantmaking alone.

“The rapid ascent of impact investing into the mainstream of the investing profession has sparked new interest among U.S. foundations in using investment tools in the pursuit of social impact,” said Sridhar Prasad, a coauthor and Bridgespan partner. “While only a small percentage of foundations have made the leap, a recent Foundation Source survey found that most—some 88% percent—were interested in trying it. And contrary to conventional wisdom, the tools available are not just for the largest foundations. The untapped potential is tantalizing.”

Philanthropic investments are not new—since 1969, foundations have been permitted under IRS rules to deploy loans, loan guarantees and equity investments to nonprofits and social enterprises. But the growing enthusiasm for impact investing has brought new energy to the conversation about how to harness capital for social good.

“Our aim,” said Prasad, “is to provide a resource for those foundations considering a move toward impact investing but unsure where to start. We want to offer practical advice gleaned from our work in this field and from the experienced philanthropic investors we interviewed.”

The report describes the different impact investing tools available to foundations and highlights how they can deployed in the service of social impact. For example, several foundations have stepped up investments in racial equity, and others have joined forces to address climate change. The report also highlights how foundations have decided to harness some or all of their endowments to advance social or environmental impact goals.

“Impact investing has a critical role to play in addressing the ongoing legacy of structural racism,” said co-author Ben Morley, a Bridgespan manager. “By making equity a centerpiece of how they think about investing for impact, foundations can play a critical role in expanding opportunities and addressing this legacy.”

Kresge’s Social Investment Practice formed in 2009 and has a commitment to deploy $350 million in impact investments by the end of this year.

Among the other takeaways from the report offered these lessons for newer impact investors:

  • Be thoughtful about which investment tools are best suited to the problems you are looking to address.
  • Match your strategic ambition to your capabilities. Small investment teams should consider limiting their scope to debt transactions. Larger teams can take on more complex guarantees and equity investments.
  • Given the complexity of effectively deploying impact investing tools to achieve meaningful change, consider opportunities to collaborate with peers.
  • When building an investment team, hire experienced impact investing professionals and encourage them to work closely with program teams to ensure investments align with programmatic objectives.
  • Make the mindset shift from grantmaker to asset manager, a shift that means taking a holistic approach to identifying the proper financial tool for the problem at hand.

“Impact investing gives foundations the tools to achieve social or environmental benefits that grants alone could never duplicate,” said Aaron Seybert, managing director of Kresge’s Social Investment Practice, which has a $350 million impact investing commitment through this year.  “Such investments can support community revitalization, support small businesses led by people of color, address racial inequity in development, and crowd in capital from investors.”

Prasad agreed saying, “The possibilities are limited only by the imagination—and the willingness of more foundations to embrace a new way of thinking and working.”

Want to learn more? Join the authors for a webinar at 2:30 p.m. ET on Oct. 21. Registration is free and open now.