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By: James M. Golubieski, President of New Jersey Health Foundation/Foundation Venture Capital Group
Our Road from Bonds and Fixed Income to Impact Investing

Do you want to incorporate an impact investment strategy into your overall organization mission without adversely influencing your investment returns?  

That was the dilemma faced by New Jersey Health Foundation as we began to explore ways to expand our mission without compromising our investment strategy.  And what we learned could assist others toward developing a meaningful impact investing program.

The key is to look beyond traditional areas for impact investing to help an organization achieve its investment mission. In our case, we began to focus on startup companies founded by promising researchers at research institutions affiliated with New Jersey Health Foundation.

A quick look back illustrates how far the concept of socially responsible investing has come and puts into perspective the breadth of opportunities organizations now have to increase not only the financial, but the social impact of each dollar they invest.  

A lawsuit dating back to 1830 and two seminal studies in 1969 were instrumental in the advancement of impact investing as we know it today.

In Harvard College v. Armory, the Armories prevailed in defending their decision to invest the assets in stocks from the John McLean estate over the objections of the plaintiffs, Harvard and Mass General.  As equal-part beneficiaries upon the death of Mr. McLean’s widow, those organizations feared losing their principal in what they believed to be overly risky investments.  

From that case in 1830, fast forward to 1969.  Before then, the vast majority of foundations and endowments recognized grants as the primary way to forward their missions and accomplish their objectives.  Relatively modest returns from very conservative investments covered administrative expenses and funded direct grants to people or organizations that championed their causes.  

The studies in 1969, “The Law and Lore of Endowment Funds” by William L.  Cary and Craig B. Bright and “Managing Educational Endowments” by Robert R. Barker, formed the impetus for significant change. 

The Birth of Impact Investing

By the 1970s socially responsible investing (SRI)—the precursor to mission-related and impact investing—was born. SRI expanded the tools available to foundations so they could move beyond grant-giving to include how portfolio investments were made, opening the door to a more prominent role for all types of equities in the average foundation and endowment portfolio and leading the way to impact investing.

When considering impact investing, the wide array of financial vehicles to choose from and the thousands of organizations and projects seeking funding make determining exactly where to invest and how to maintain a targeted rate of return a daunting endeavor for any organization.

New Jersey Health Foundation faced that challenge by developing a workable yet unique approach. By looking within our own organization and the organizations we support we believed we could further our mission without sacrificing overall returns.  We limited our initial impact investments to one asset class, alternative investments, determining where to start based on an opportunity that was most consistent with our mission and investment goals.

First, we identified an unmet need for pre-seed funding to further develop and ultimately commercialize promising discoveries. This unmet need and a desire to integrate impact investing into our investment strategy led us to develop two initiatives:

  • The development of a new company, Foundation Venture Capital Group, that invests up to $500,000 in health-related start-up companies
  • An Innovation Grants Program that awards grants up to $50,000 each for health-related projects with commercialization potential 

The benefits of our approach have been significant:

  • Through the Innovation Grants Program we have awarded more than $400,000 in grants to provide the necessary funding to move health-related projects further on the road to commercialization.
  • We have provided private equity funds to 11 companies through a new company we established, Foundation Venture Capital Group.  Many of the companies in which we invest are at a very early stage in development and would not qualify for traditional venture capital funding opportunities. 

Venture capital as a method of impact investing has led New Jersey Health Foundation to a new approach to fulfilling our mission—advancing health-related research in New Jersey that will hopefully lead to discoveries that will significantly impact healthcare in our society.  We suggest you too look at impact investing as a way to meet or grow your mission of social responsibility.

Source:

Foundation and Endowment Investing: Philosophies and Strategies of Top Investors and Institutions
Chapter 1:  The Evolution of Foundation and Endowment Investment Management, From Poorhouses to Powerhouses, Lawrence E. Kochard and Cathleen M. Rittereiser January 2008
Published by Wiley, John & Sons, Incorporated