The Paul Ramsay Foundation is the largest annual contributor of grant funding in Australia, distributing almost $170 million in 2020. Their impact is huge, and it’s only increased since 2019, when they launched an impact investment program.

The organisation brought on Abhilash Mudaliar, who was previously Director of Research at the Global Impact Investing Network (GIIN) in New York, to manage their investment approach and define their impact philosophy.

It’s proven to be a powerful combination, with the team having invested more than $85 million in impact capital in one and a half years.

OnImpact spoke with Abhilash about the impact approach, the challenges of integrating an investment model into an organization founded on grant-giving.

And… their aspirations towards an impact investment allocation of 10% of the Foundation’s corpus, which would represent $300 million in investment capital, allocated to impact.

Investing to ‘Break Cycles of Disadvantage’

The Paul Ramsay Foundation has a clear mission, the organisation aims to ‘break cycles of disadvantage’. It’s a systemic approach that recognises the complex and stubborn barriers to change that allow poverty, unemployment and vulnerability to persist.

They’re grant-making is driving profound change, but they wanted to take it further, and saw that investing and offering loans was an alternative pathway to reaching the same goal.

“First, we think about how we can use impact investing as a tool to further our mission of breaking cycles of disadvantage, in a way that’s also complimentary to our grant making. Financial returns are, of course, important, but impact and mission is the central motivation for us.” Abhilash says.

“We’ve done a range of different investments in this area, including making some direct loans to social enterprises, like Jigsaw. We’ve also invested in a handful of different social impact bonds, such as Living Learning, and three different social impact bonds with SVA. We’ve also invested in new funds. First Australians Capital, has recently launched an indigenous business fund and we’ve invested as an LP.

All of these are investments, where they’re aligned with our strategic focus, have a central goal of furthering our mission of breaking cycles of disadvantage.” Abhilash says.

The size of the firm allows them to deploy capital in a number of streams, and it’s a sign of Abhilash’s skill as an investor that he can manage loans, direct investments, as well as larger allocations to real estate projects.

“There’s a second bucket where we’re thinking about how we can leverage our balance sheet in ways that are more broadly aligned with our mission, but at the same time, making risk adjusted returns, so that we can continue to support our annual grant making, which is $150 million plus per annum.

So here, we’ve made some larger investments in real estate, and in particular, social and affordable housing, and disability housing. We invested in the Synergis Fund, which is a large disability housing fund. And we’ve also invested in a social housing opportunity with Conscious Investment Management.” Abhilash explains.

Grants vs Investments

The mission may be the same, but shifting from using only grants as a tool for change, towards making investments as well, is no easy feat.

“I think it’s important to start with the recognition that impact investing is not a replacement for grant making. But rather, it’s a different style of funding, and a different approach addressing social challenges.” Abhilash says.

“But I think increasingly, we’re seeing many frontline organisations become open to the idea that they don’t have to rely only on grants. And also that grants are not necessarily always the appropriate tool for a particular project.

I’ve also noticed, over the last couple of years, that there’s actually a lot of overlap between how you assess and evaluate a grant versus an investment. The types of due diligence one does on the team, as well as analysing the ‘market’.

Similarly, across the competitive landscape, the impact thesis and the theory of change, as well as the strength of the particular organisation in terms of finance and management. You look at all of those aspects, whether you’re making a grant or making an investment.

I think what’s different, of course, is that with an investment, you’re also seeking to make a financial return. So you’re also looking at certain aspects of valuation, structuring, and exits,  which you may not look at in the same way as with the grant process. And we have individuals in our governance bodies, such as our Board and Investment Committee, that have expertise in both areas.” Abhilash explains.

Both Impact & Finance First

There’s often an assumption that if a charitable organisation is getting involved in impact investing, that they’ll be willing to make concessionary investments, that they will trade-off returns for impact. But as Abhilash explains, it’s more complex than that. Investments are assessed on their merits, and that in this brave new world of funding social innovation, there may not be any reference point for a market-rate.

“I don’t necessarily subscribe to a black and white dichotomy about trade-offs. I think every individual opportunity needs to be assessed on its merits, and in particular, across three dimensions that interplay with each other, which is risk return and impact.” Abhilash says.

“Some people use the language of ‘impact first’ and ‘finance first’. And, for us, there are some investments that we make, which are very much impact first, where our primary objective is impact and furthering our mission. For these we are willing to take ‘concessionary’ returns, I add the quotes, because in a lot of these markets there hasn’t been any investing done before, so no one really has a sense for what is a market rate.

But there are other impact investments that we’ve made, where as I was describing earlier, we’re trying to make risk adjusted returns so that we’re able to support our annual grant making.”

Ambitions to Invest $300 million

Savvy investors recognise and respond to opportunities when they arise. Abhilash made clear that if the local impact market evolves in the way he hopes, and that new opportunities develop, PRF will be ready and willing to substantially grow their investment allocation.

“In the year and a half that we’ve had an impact investing practice, we’ve committed just over $85 million to impact investments. And in terms of our ambitions, and while it’s subject to market conditions and available opportunities, we’d like to aim for 10% of our balance sheet allocated to impact investments.

To put that in context; right now, our balance sheet’s around $3 billion. So, $100 million out of $3 billion is nearly 3%, that’s what we’re approaching at the moment. And so if we got to $300 million, then that would represent 10%, and I think that’s achievable.” Abhilash says.

“But of course the Australian market is still pretty nascent. And so it’s hard to know what the market opportunity will be three years, five years down the line. But that’s where we’d like to be.”

Growing the Team

“Our impact investing work began when I joined PRF. And then, about a year later we brought Emilie Ottervanger on board . So right now, it’s the two of us, but of course we work with external consultants as needed on various transactions as well.” Abhilash says.

“And that goes back to what we spoke about earlier, seeking to strengthen the ecosystem. And one way in which we’re trying to do that is actually by providing mandates to other organisations in the ecosystem.

We’ve worked with several intermediaries in different ways, including to conduct due diligence on investment opportunities or to offer investment syndication services or to support capacity building of social enterprises. These include; For Purpose Investment Partners, Impact Generation Partners, Brightlight Impact, Social Impact Hub, SEFA and Impact Seed.

We’re also advertising actively for one more member to join the team in the next couple of months. Over time, it’ll continue to grow as the portfolio grows.” Abhilash says.

As we’ve covered in previous stories, the market for the best impact talent is hot. Abhilash sees this as vindication that the market is sustainable, and that interest from those working in mainstream finance will only strengthen the sector.

“We’re getting a good quality pool of applicants and that’s really promising for the sector, it shows that it’s growing. But it also shows that there’s a lot of demand from people with more mainstream or conventional finance backgrounds, to want to apply their skills towards ‘doing good’, or in a way that they find more fulfilling professionally.

I think that’s fantastic, and it augurs well for the growth of the sector. Bringing people into impact investing, who have more of a conventional mainstream finance background, those with the right intent and mind frame, can really help the sector grow.”

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