The model used to frame what may prevent a foundation from engaging in these strategies suggests that the lack of skill or capacity within the foundation to design, develop and implement an impact investing approach or structuring model may be an impediment (Business &
Sustainable Development Commission & Convergence, 2017; Charlton et al., 2014). This sub- section considers what the case study foundations have done to address this.
All of the foundations interviewed describe a very specific set of skills that they have employed to be able to execute their impact investing and blended finance strategies. Whether they are investing as part of their programmatic work (Programme Related Investment – PRI) or investing their endowment aligned to their mission (Mission Related Investment – MRI), the skill set is different to those deployed on the programmatic side of the foundation’s work. The Bill and Melinda Gates Foundation is an explicit example of this. Much of their programmatic work involves specific investment into emerging health technologies at the frontier of dread disease prevention and cure in the developing world. Therefore, this skill set is focussed on biologists and scientists to best inform their programmes. The investment team on the other hand, hails from the private equity and venture capital private sector.
“…our roles and titles within the team, while they have an equivalent within the rest of the foundation, they are actually aligned more with what you would find in a traditional investment house. We have associates, principals, partners and managing partners. And if you look at our foundations recruiting page, it says ‘Principal, private equity fund’. Just to attract that type of person.” ~ PRI Investment Professional
Recently, the Gates Foundation’s Programme Related Investment Team changed its name to the ‘Gates Foundation Strategic Investment Fund’ specifically to profile its’ skill set to those companies looking to open markets in the developing world and needing the funding to do so (Cheney, 2018). When Heron embarked on their strategy to invest all of their assets for a positive impact return, their requirement for a different set of skills changed from the traditional skill set they had employed at that time.
“Everything from basic training to the talents that we hired for over time definitely shifted. We need people that had financial acumen and were deeply committed to the movement, the work. So, I would say that it very much changed over time.” ~ VP Capital Markets
For Ford, who are at the outset of transitioning into an impact investing strategy for their foundation, they have relied on the in-house PRI skill set that they use for their philanthropic capital. While they are recruiting for new staff to give effect to their endowment impact investing strategy (mission related investment – MRI), it has been easier to redeploy their PRI staff since these people typically have the investment skills.
“…the staff that were working on our PRI are going to be working on our MRI. We are also in the process of recruiting for a specialist that would oversee our impact investing portfolio as a whole that would have more traditional investment experience. So that was important in terms of thinking about portfolio allocation and investment strategy for our board as part of this. Yes, I mean the people that work on our PRI funds all come out of pretty traditional investments initially so MBAs working in investment functions at big investment banks and transitioned into this work so we had this subset. It wasn’t like these were grant making professionals at the foundation.” ~ Foundation A
At times, this strategy of deploying strong financial skills within the foundation’s ranks can be overextended. Heron provides a word of caution that by employing skills that have financial acumen and a deep understanding of the foundation’s mission does not mean that the foundation has to build an in-house investment capability.
“Quite literally, when we first decided to examine our portfolio, we brought in a bunch of Bloomberg terminals. We as staff went on a very steep learning curve. First, how to use them? And then, what the hell are they telling you? P.S. Do not do that. There is absolutely no reason to do that.” ~ VP Capital Markets
Gates describes this propensity to develop an in-house capability with a similar level of caution. While they did not attempt to re-skill programmatic staff as Heron did, they have found that they need to recognise the limits of their own capability. In their view, the investment team at Gates
is relatively small (12 people) in comparison to the traditional investment environments from which the team all hail. Given their limited capacity both in terms of team size and their limited technical understanding of the programmatic work, the investment team at Gates relies on the programme team to provide the pipeline of investable opportunities.
“We get to be the deal jockeys. I am building up the skills base, but I am not a biologist. The deals are usually sourced from our programme team. They will say, we are talking to a company that has a really interesting delivery mechanism for diabetes and we think it could be used for HIV. And we will say ‘great’ and we will go and talk to them. We come in and work with and talk to the company about structuring, but rely on them [the programme team] as the subject experts. By osmosis eventually, you can build up a lot of knowledge, but you can never have the depth of knowledge… We have the luxury to marry our 12 people with the several hundred programmatic experts with the foundation.” ~ PRI Investment Professional
Despite utilising a skill set within the foundation that hails from the traditional investment sector, these investment teams are embedded within the programmatic work of the foundation. The Heron foundation notes this best:
“We have a single team – what we call the Integrated Capitals Team. I would argue … that not only should those teams not be separate, they really are inextricably linked. Yes, there were [skills gaps]. It did happen over time. I remember when I joined Heron 12 years ago, I remember the woman, who was our VP of Programmes saying that ‘she had to learn to love and embrace her inner loan officer’.” ~ VP Capital Markets
At Gates they rely on the programmatic team not only to inform pipeline, but also to provide very specific technical knowledge that will inform whether a deal is worth pursuing or not.
“When it comes to approaches to deal with diseases the folks on the programme side know how to deal with that better than anyone on earth. We [as the investment team] are very close to it. You can be flipping sourcing on its head and still not finding investable opportunities because there are technical elements (molecule size) that make the
The Annie E Casey Foundation sums up the manner in which these foundations have solved for the skills gap and avoid it being an impediment to utilising investing for impact strategies.
“…the previous Director and this current Director came from a traditional investment background. So, the current Director has a strong investment background, but also has developed a programmatic understanding under the mentorship of the previous Director. …you need to have a fairly strong understanding of the programmatic work [mission], but at the same time, also have the ability to understand a variety of investment tools and strategies both at intermediary level and then direct investing level to help figure out what is the best approach – what is the best use of capital to address the programmatic challenge we are trying to resolve.” ~ Senior Investment Analyst