The “Secret Sauce” Behind McKnight’s Impact Investing Decision

May 1, 2014

Wolford_Kate_13Today on the blog we welcome Kate Wolford, president of The McKnight Foundation. McKnight’s board recently voted unanimously to develop an impact investing program. Here Kate explains the process behind the foundation’s decision to mobilize the “other 95%.” 

This March, McKnight announced its commitment to invest an initial $200 million, roughly 10% of current endowment assets, across four strands of impact investing. On the heels of a relatively quiet year of board and staff learning and program design, we have plunged into the vortex of an incredibly dynamic field of activity. I’ve been inundated with inquiries from prospective fund managers, invitations to a dozen seminars, and lots of related research.

Although the field is growing, impact investing is still finding its footing among foundations nationally. In a spirit of shared learning, I offer a few thoughts on how McKnight got to this point.

McKnight’s History
McKnight isn’t new to this arena. The Foundation made its first Program-Related Investments in the 1980s. Different from a grant, a PRI functions as a low-cost loan, provided at below-market rates to strengthen the recipient’s mission-focused work.

About five years ago, McKnight rebooted our PRI program — which by then had fallen somewhat dormant — and we’ve now invested about $21 million in PRIs aligned with goals in our Region & Communities and Mississippi River programs. (That’s in addition to grants totaling about $28 million last year across those programs.) Also, McKnight employs eight investment firms, representing over $1.3 billion of our portfolio, who are signatories of the UN Principles for Responsible Investment.

It’s Path to Today
A combination of factors led McKnight’s board of directors to embark on a systematic learning and program design agenda around impact investing in 2013, including:

  • A family foundation to the core, McKnight’s very active board still includes direct descendants of the founders. Fourth-generation family members are keen to align more endowment dollars with program goals, mobilizing our “other 95%” beyond grant dollars. (Federal tax laws require private foundations to distribute just 5% of net investment assets annually for charitable and administrative purposes.)
  • In 2012, McKnight adopted a Strategic Framework focused on strengthening our adaptive leadership and credible influence, and signaling impact investing as an emerging interest.
  • Among McKnight’s staff and some grantees, interest has been growing to explore more direct market-oriented levers for change, alongside our longstanding policy work.
  • Given the Foundation’s major program commitment to accelerate the Midwest’s transition to a low-carbon economy, as well as growing global efforts to shift incentives and investments away from fossil fuels, timing seemed right for us to explore related tools and opportunities.

Foundation-wide Engagement
Recognizing value in foundation-wide engagement, the board established a work group comprising our board chair, two directors who serve on McKnight’s Investment Committee, one director who does not serve on the Investment Committee, and several staffers representing key administrative, program and finance functions. During a year of intensive exploration, we learned about opportunities and challenges across asset classes, about the current field of impact investing, and about field enhancements philanthropy might be able to help incent or create. We explored a variety of ways to structure and staff a program.

And we sought out the informed wisdom of philanthropic colleagues; for example, former W.K. Kellogg Foundation president Sterling Speirn spoke with our full board about Kellogg’s experience in mission-driven investing.

Although the work group was most actively involved, its members updated our board at each quarterly meeting, and the board focused its annual retreat around the topic. One huge retreat outcome was unanimous board approval to develop an impact investing program composed of four stands with initial allocations of $50 million each — Mission-Related Investments (Public Markets), Mission-Related Investments (Private Markets), Mission-Driven Investments, and Program-Related Investments.

Conversations, Vigorous Debate, Thoughtful Implementation
These decisions were a long time coming and the result of deep learning and exhaustive conversations among our board and staff. Ultimately, I believe those conversations will emerge as our “secret sauce” — vigorous debate, and an inherent commitment to thoughtful implementation.

Although our process may at times feel like a constant churn of learning and refinement, we’ll do well to embrace this disruptive push and pull as precisely what it feels like to be adaptive leaders in emergent space.

Visit McKnight’s blog for a more detailed look at its process.


Inequities – Experienced by Some – Threaten All

April 23, 2014

FRSeveral days ago I received an email from Marketplace with the subject line: Forget the 1%. The 0.01% owns 12% of all wealth in America. When I clicked through, things got worse: Around 50 percent of the US population has zero net wealth. Their debts, effectively, equal their assets.

Despite some familiarity with income inequality and persistent poverty in the U.S., the reality of so much being owned by so few and of so many owning nothing at all hit hard.

Even with the Great Recession behind us, numbers that reinforce the harsh realities of racial and economic disparity are released daily. “The Urgency of Now: Foundations’ Role in Ending Racial Inequity” in the latest issue of The Foundation Review presents many of the issues and the depth of the challenge we find ourselves in. It surveys philanthropy’s evolution in addressing poverty and traces a long history of the racialization of institutions and systems.

But the article, by Gary Cunningham, Northwest Area Foundation; Marcia Avner, University of Minnesota — Duluth; and Romilda Justilien, BCT Partners also explores multiple approaches that foundations can use to advance racial equity and prosperity. And it offers specific approaches used by the Northwest Area Foundation, an MCF member, that others working for equity could also employ.

MCF and many of its members work in multiple ways to advance equity. By equity, we mean the conditions that will exist when factors such as racial, ethnic, economic and geographic differences are no longer predictors of life outcomes. We believe it’s important because inequities experienced by some threaten the future prosperity of all.

- Susan Stehling, MCF communications associate


President Obama Announces “My Brother’s Keeper” and Philanthropy Investment

February 28, 2014

obama9Boys and young men of color too often face disproportionate challenges and obstacles to success in our society.

Today in the U.S., if you are African-American, there’s a 50-50 chance that you’ll grow up without a father at home, and you’re more likely to be poor, to not read well, to be expelled from school and eventually to end up incarcerated.

And, as President Obama stressed yesterday, “The worst part is we’ve become numb to these statistics. We pretend this is a normal part of American life instead of the outrage that it is. These statistics should break our hearts and compel us to act.”

Act is what the President did Thursday as he signed a Presidential Memorandum establishing the “My Brother’s Keeper” Task Force, an interagency initiative to determine what public and private efforts are working for young men and boys of color and how to expand upon them.

The President has built a broad coalition of backers to help break down barriers, clear pathways to opportunity and reverse troubling trends that show too many boys and young men of color slipping through the cracks.

For yesterday’s announcement, he was joined by philanthropic leaders — including MCF President Trista Harris and David Nicholson, executive director of the Headwaters Foundation for Justice — and representatives from communities, business, government and faith groups.

Foundations have already made extensive investments in support of boys and young men of color. Building on that, yesterday 10 foundations (including MCF members The John S. and James L. Knight Foundation and W.K. Kellogg Foundation) announced additional commitments of at least $200 million over the next five years to find and rapidly spread solutions that have the highest potential for positive impact in the lives of boys and young men of color.

Look for more next week on Trista Harris’ D.C. experience.

- Susan Stehling, MCF communications associate


Tune in to American Public Media’s “A Lot to Give”

December 12, 2013

marketIf you listen to the radio, I hope you’ve heard “A Lot to Give: A Philanthropy Series” on American Public Media’s Marketplace this week.

APM summarizes the series this way: “an inside look at the rarefied air of big donors and philanthropy from the Wealth and Poverty Desk.” I’ve certainly found it to be more accessible and interesting than that description makes it sound!

By following the links (below), you can quickly read or listen to the completed pieces, which are 2 to 7 minutes in length.

Since Sunday, the series has covered the following topics. After each link, I’ve listed one thing I learned or had confirmed by the piece.

History
The roots – and some results – of the charitable tax deduction: To pay for WWI, in 1917 Congress was in the process of hiking the top income tax rate from 15 to 77%.

Hard truths
The realities – and pitfalls – of giving away money: Family foundations are only as healthy as the family is.

Why a foundation?
Charitable foundations aren’t just for the uber rich: 65% of all U.S. foundations are under a million dollars.

Criticism

Beyond charity
Philanthropy’s edge: innovation and a long time horizon: Philanthropy is responsible for the painted lines that outline our roads.

Who Gives?
And, for fun, take the “Who Gives?” quiz about your giving and see if your causes are similar to Oprah, Bill Gates or Bono.

The series continues through the end of the week. To listen to new pieces, tune your radio to MPR news.

- Susan Stehling, MCF communications associate


#GivingTuesday — Giving, Not Shopping, is the Spirit of the Season

November 26, 2013

gtIn America, the next week has, by my count, five named days. Most of them born of our “need” to shop.

Eat
On Thanksgiving, we’ll spend time with family, watch some football, express gratitude for our plenty and eat too much. (We may or may not acknowledge that Native Americans see the day differently than non-natives.)

Shop
Then on Black Friday, Small Business Saturday and Cyber Monday, we’ll spend millions — much of it to buy stuff we don’t need.

Give
That’s why I find #GivingTuesday to be a refreshing change from the three days that proceed it. On #GivingTuesday, we’re asked to share some of our plenty with charitable organizations and nonprofits in our community and across the country. It is a new national fundraising day to remind us that giving — not shopping — is the true spirit of the holiday season.

I’ve just about finished up my 2013 charitable giving — doing much of it on Minnesota’s recent Give to the Max Day. But, that day had its technical difficulties, and maybe you didn’t get around to giving what you had planned. Or maybe you haven’t tried online giving at all. If that’s the case, I urge you to consider participating in #GivingTuesday.

Why #GivingTuesday?
Many Minnesota nonprofits with matching dollars left on the table from Give to the Max Day will make them available on #GivingTuesday. Matching gifts multiply the power of your contribution.

According to The Able Altruist, published by Software Advice, 22% of annual giving to nonprofits comes in on December 30 and 31, which makes nonprofit budgeting awfully difficult. This way you’ll get it done a few weeks before the end of the year.

It’s a well publicized national day of giving with $100,000 in prize grants to the top 50 participating nonprofits from across the country.

And, it’ll be fun — social media will be buzzing with the hashtag #GivingTuesday on Dec. 3.

- Susan Stehling, MCF communications associate


The Latest on Foundation Pay and Staff Demographics

July 15, 2013

2012reportA new report from the national Council on Foundations offers a look at staffing and compensation for grantmakers around the country.

The headline news was that pay for foundation staff rose slowly last year, up 2.1 percent, keeping pace with inflation. Other findings in the report shed light on demographic challenges facing grantmakers now and in the future. Particularly of note:

  • The graying of foundation staff has accelerated significantly. Forty percent of full-time staff were age 50 or older, compared to only 25 percent in 2007. This is causing benefits pay such as health insurance to rise. It also presents a challenge, and an opportunity, for grantmakers to ensure that the next generation of staff will be ready to lead in the coming years.
  • There is still a large gender gap at the top of large foundations. While 82 percent of small foundations are led by women, that number drops to only 25 percent for those with more than $750 million in assets.
  • Twenty-nine percent of private foundations reported that they employ people of color, while only 19 percent of community foundations said the same. Note that this figure does not indicate what percentage of any foundation’s staff is made up of people of color or what position these employees hold.

Head over to this article in The Chronicle of Philanthropy to read more about this new report, and download the full report on the national Council on Foundations website ($149 for COF members, $199 for non-members).


A Quick Introduction to Philanthropy in Minnesota

May 9, 2013
MCF President Bill King on Comcast Newsmakers

MCF President Bill King on Comcast Newsmakers

If you work in philanthropy, you know it can be difficult to succinctly summarize the various foundation types, the range of corporate giving initiatives, how grantmakers determine which nonprofits to support, how individual contributions fit into the giving picture and what role MCF plays in any or all of it.

Recently, MCF’s president Bill King did this in a 4-minute Comcast Newsmakers segment.

If you know a foundation staff person who could use some information on how MCF can help them connect with other Minnesota grantmakers or someone who just wants an introduction to philanthropy in Minnesota, have them watch.

Watch the video on the Comcast Newsmakers website.

Newsmakers also airs at :24 and :54 minutes after the hour on CNN Headline News, middays Monday to Friday, and weekends during morning and early afternoon hours.

If you’re a Comcast digital cable customer, Newsmakers is also a regular feature of Comcast’s Twin Cities-based Local On Demand content. (From Comcast’s On Demand homepage, choose the Get Local tab, then the Newsmakers tab.)

Did you learn anything when you watched? Let us know what surprised you about giving in Minnesota!

- Susan Stehling, MCF communications associate


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