Foundations have a claim to being the original ‘impact’ organisations. With a mission and a theory of change, foundations turn money into outcomes. It’s a system that’s worked for many generations, but as our economy changes, so too must foundations look for new avenues to deliver programs and drive positive impact. 

A batch of progressive foundations have been doing just that. Organisations like Paul Ramsay Foundation (PRF), Minderoo Foundation and Macquarie Group Foundations have moved beyond simply allocating their endowment towards worthwhile projects, they’ve cracked open their corpus and actually allocated some of their investable funds towards supporting social enterprises.

And now an alliance has formed, with a group of leading foundations coming together to grow impact investing in Australia. It’s called the Foundations Group for Impact Investing. The founding group includes the PRF, Minderoo Foundation, the Macquarie Group Foundation, the Westpac Foundation, UBS Optimus Foundation Australia, Hand Heart Pocket, Lord Mayor’s Charitable Foundation, the English Family Foundation and the Snow Foundation.

Philanthropy Australia’s will be the group’s independent secretariat, while Impact Investing Australia and the Impact Club will play a supporting role. 

OnImpact spoke with a number of those involved to explore what the body hopes to achieve, the challenges, and how it hopes to drive broader engagement of impact investing among more traditional foundations. 

Why Form a Network?

PRF and Minderoo are some of Australia’s largest grant-givers, so why would they choose to team up with others to focus on impact investing? 

“We know that the impact investment market in Australia remains nascent compared with some of its global peers. Expecting one organisation to have all of the answers in the market is unrealistic, and unhealthy for market dynamics. And if several organisations take it upon themselves to try and solve market failure separately it risks resulting in duplication of efforts, wasted resource and confusion.” says Ben Smith, Head of Impact Investing at PRF. Ben will also initially chair the Foundations Group for Impact Investing.

“I’ve been fortunate enough to co-Chair the UK Social Impact Investors Group, which the network is modelled on. There, we saw similar fragmentation. We know that there are barriers to entry in getting started with impact investing (particularly ‘catalytic’ capital which often needs to accept concessionary financial returns – which is the Foundation Impact Investors Group primary target). Barriers include the need to educate staff and Board members; high relative transaction costs associated with making often smaller, high-risk impact-first catalytic investments; governance challenges on impact ‘allocations’; and the need to invest in internal expertise if a foundation wishes to begin impact investing. What the Social Impact Investors Group did so well, which we hope to emulate, is to bring foundations together – regardless of their size or experience – to learn from, and work with, one another.”

The alliance will provide social enterprises, who are looking for capital, with one organisation to which they can target their pitch for investment funding. 

“The collaboration will also streamline the process for social enterprises and other for-purpose organisations seeking investment, making capital more accessible, while providing access to education for the broader market. This collaborative approach which allows for a pooling of resources has been successful in other countries such as the US and UK, with the intent that it will be a catalyst for impact investing in Australia as well.” says Cronje Wolvaardt, the new director of impact at Minderoo Foundation. 

The Power of Foundations Investing in Impact

Foundations have a unique set of priorities, and they’re governed by clear rules that put the good of their stakeholders front and centre. But none of that precludes them from exploring the way their investment capital is allocated. 

“We believe that foundations are uniquely placed to address the high-risk, often concessionary, impact-first catalytic end of the spectrum of capital.” Ben Smith says. 

“Having worked at an impact investing intermediary in the UK, I know first-hand that the impact fund managers at the high-risk, early stage, often struggle to succeed. These funds are typically sub-scale, the margins are small and the level of risk required to service this end of the market means that you either need: Very patient, affordable ‘wholesale’ finance, to reduce risk appetite, or apply a very high cost of capital (either interest rates or equity holding). Foundations don’t have investors in the same way, and given that foundations typically focus on grant-making which expects no financial return, foundations – conceptually – should be able to operate in this low margin, high-risk environment.”

For foundations, there’s so much more to the calculus than just risk and return. 

“Foundations can utilise the full spectrum of capital when approaching impact investing, from concessionary, blended, patient and first loss capital, to commercial investing that drives tangible impact.” says Cronje Wolvaardt.

The Pioneers – Growing Impact Investing

It’s the role of leaders to make change; to take risks and explore new territory. The foundations that are part of the alliance are already well on their journey, but they have the potential to help guide and mentor other organisations about how to get started, who to consult, as well as partnering on due-diligence for certain deals. 

“Minderoo was established in 2001 and continues to adapt and evolve as we learn and grow, including with regards to maximising impact, which I think is a theme of the broader philanthropic sector.” says Cronje Wolvaardt.

“Minderoo is one of a number of foundations that have shifted to impact investing, including utilising different tools such as catalytic capital. While there is already collaboration, information sharing and support between foundations, Foundations Group for Impact Investing will formalise this, with Minderoo excited to both learn and share as part of the Group.”

Now that these leading organisation have developed a track record, and learned a whole swag of lessons, they have the opportunity to help others begin their journey.

“An important element of our social impact investing work is around connecting, learning, and sharing with peers and social enterprises to support this emerging sector. To help facilitate this, the Macquarie Group Foundation is proud to join some of Australia’s leading philanthropic institutions in launching the Foundations Group for Impact Investing, which will accelerate the growth of impact investing in Australia by enabling partnerships that unlock its potential.” Says Susan Clear, Director of Social Impact Investing at Macquarie Group Foundation.

They are demonstrating the unique role that foundations can play in investment markets, to support social enterprises with impact-first capital that views outcomes through a different lens to commercial investors.  

“PRF may be young, but we are fortunate to have the support of a Board who give us the freedom to operate in impact investing. This enabled us to build an impact investing portfolio far in excess of $100m, and already establish itself as a leading impact investor in Australia.” Ben Smith says. 

“We know that many foundations have a gap in their offering between grant making and risk-adjusted market rate return investments. The alliance seeks to bridge this gap by encouraging learning (either those who are very nascent, or those that are more established) and recognise the huge impact which can be generated by offering high risk impact-first catalytic capital.”

“We know that there is no easy-fix. The key is to work together and we are all excited about doing so.”

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