The economic crisis is creating enormous challenges for foundations. The questions for financial advisors are: Can you help them, and as a result, convert them into your clients?
John Campagna, managing director of Benchmark Asset Managers in Baltimore, thinks financial advisors can. In fact, his firm and Rockefeller Philanthropy Advisors, headquartered in New York, are going to show foundations how they can achieve their goals for mission-related investing at a workshop in Baltimore on May 21 and another one in San Francisco on June 11. Benchmark intends to highlight its full commitment to socially responsible and sustainable investing, risk management strategies and low-cost solutions. The firm says its all-client composite returns were -4.5% for the fourth quarter of 2008, -5.1% for all of last year and 3.7% for the last three years. Traditional 60/40 asset allocation returns were -11.7%, -20.7% and -3.3%, respectively, for the same time periods, it adds.
"With the declines in the past year and the damage done to endowment portfolios, how do you maintain an impact, a mission, if you don't have as much capital to give away?" asks Campagna. "Benchmark's emphasis is, don't be scared of mission-related investing; this is not a loss leader."
Foundations, as well as other investors, can be responsible fiduciaries and look for sustainable investments that help achieve a mission, he adds.
Simply put, mission-related investing means making financial investments that offer an investment return while advancing a cause. Foundations need to broaden their perspective on how they manage their money, Campagna believes. For example, even opening CDs in a community bank that makes loans for affordable housing can be looked at as mission-related, he says. Small foundations might find they can pool their resources in a loan fund that provides financing for projects that advance social causes, he adds.
One thing is for sure, foundations will need to be creative this year to achieve their goals. A report released in April by the Foundation Center based on a survey done early this year of 1,200 U.S. foundations shows that overall foundation assets dropped 21.9% in 2008, an unprecedented loss of charitable resources. As a result, close to two-thirds predict reductions in the number and/or size of their grants this year. Two out of five say they expect to dip into endowment principal to fund 2009 grant-making budgets.
At the same time, many community foundations are engaging in special initiatives to help their communities cope with the fallout from the crisis. And many others say they will increase non-grant-making efforts such as technical assistance, emergency financing and advocacy.
But many smaller family foundations are frustrated with upkeep, the time commitment and the costs and are transferring assets to donor-advised funds, says a recent article in the The Wall Street Journal. That trend might also provide opportunities for advisors to help those foundations make the transition.