Impact investing has been growing fast, with total assets under management nearly doubling to $114 billion in two years, according to the Global Impact Investing Network.
And the big foundations are beginning to vote with their feet. The Ford Foundation – founded by car manufacturer Henry and his brother Edsel in 1928 – unveiled its plans to commit a billion dollars to mission-related investments (MRIs). The $12 billion institution has about 21 percent of its assets in private equity.
MRIs are an addition to its existing impact investing efforts, which have been going on for 50 years, according to Xavier de Souza Briggs, vice-president of economic opportunity and markets at Ford. But, Ford's impact investments had been made through its grant-making budget, which focused more on charitable goals than financial gains.
It will now act as a limited partner, focusing MRIs exclusively in private markets and via funds.
In building out the portfolio, the team, which is led by de Souza Briggs, will seek advice from the main investment division, including chief investment officer Eric Doppstadt, and the newly formed MRI committee, which is chaired by Peter Nadosy, who spent 27 years at Morgan Stanley.
When it announced the pledge, Ford also began a search for director of mission investments. De Souza Briggs says they hope to find an experienced portfolio manager.
Ford has about 40 managers in the pipeline that target two sectors: affordable housing and financial inclusion, according to Christine Looney, the foundation's senior programme investment officer of inclusive economies. They were chosen for two reasons – alignment with the foundation's strategy to combat inequality, and investible opportunity. She adds Ford saw maturity and opportunities with funds active in financial inclusion in India and sub-Saharan Africa.
“It not only has to do with our track record investing in those sectors but also just where those markets are today,” Looney says. “I feel confident that over the next couple of years there will be sufficient pipeline in those areas to select quality managers that align with Ford's programme.”
The team will look for managers with tested investment strategies, Looney adds.
Ford is also sending a message to its peers with its major commitment to MRIs. Other investors active in the impact space include the Overseas Private Investment Corporation, which made the largest single commitment in its history of $200 million to LeapFrog in 2015, and Prudential, which plans to grow its impact AUM to $1 billion by 2020.
But overall, LPs committed to impact investing remain few and far between. Ford is hoping other foundations will follow suit.
“The fund manager audience, those that develop compelling theses, is one important audience, and foundations are also an important audience, given their missions have both a special obligation and a special opportunity and the flexible ways they can deploy their assets,” de Souza Briggs says. “We firmly believe that it'll be a better marketplace for all of us if we work together – if we each take some new steps forward.”