Three Insights on Investing Foundation Endowments 

As part of Impact Week 2023 in Torino, we provided the space for a much-needed discussion on endowment investments.  Building on previous gatherings and work with partners such as Philea, this session brought together foundations and other experts to delve deeper on how to ensure these investments create impact alongside returns. 

Bryan Scheler, Chiara Borneman, Sarah Teacher and Sybren Devoghel led the discussion by sharing the experiences of BMW Foundation, Phenix Capital, Impact Investing Institute and King Baudouin Foundation. While many takeaways arose, three main insights were highlighted, highly applicable for endowed foundations seeking to level up their impact. 

1. Impact expertise must come from within 

Practitioners emphasised the prevalent role of external asset managers in managing endowments – a hurdle for more impact. External asset managers often lack expertise in impact investing, so they struggle to effectively identify the differences between real and perceived risks associated with impact investments. Since these asset managers engage and report to the foundation’s management, their misidentification of risks can mean impact investments fail to launch. 

To address this challenge, foundations must invest in building their own knowledge on risk: understanding and accepting endowments’ associated risks and finding innovative tools to scale positive impact. Examples discussed included co-investment vehicles and taking a holistic approach between grants and impact investments. 

For more: Delve into catalytic capital and how grants and investments can act to help combat perceived and actual risk in blended structures. Read our latest whitepaper Catalysing Impact and stay tuned through 2024 for deep dives into four different investment approaches, starting with our newly published article on additionality. 

2. Asset diversification remains a challenge  

Asset diversification remains a challenge in impact investing, particularly in publicly listed assets.  Diversifying assets whilst retaining an impact focus has proved easier, up to now, in private markets. Since the large majority of endowed assets are invested in public equities, achieving scale of impact investing is challenging. The larger investment ticket sizes traditionally required to access private market opportunities also act as a barrier to entry for smaller foundations.  

This context underscores the need for greater recognition of impact investing, both its value and practices, among endowed foundations. To make diversification of assets easier, it would help to build a consensus on impact standards to address regulatory and perception challenges in public markets.  

For more: Take a look into Impact Europe’s previous Foundations Endowment e-talk, where we showcased examples of private market and public market listed impact investing opportunities. 

3. Peer exchange builds knowledge 

Knowledge about impact investing varies greatly among foundations. This was actively addressed by the impromptu hosting of the ‘Impact Investing 101’ table for those new to the space, alongside tables for deeper conversations between practitioners (thanks, Sarah!).  

To help build this knowledge, peer exchange was identified as a vital need. Practitioners sought spaces to share and learn from each other’s challenges, and ‘not feel alone.’ Often those leading the charge for impact in their organisation are also the only impact experts present, which means they have few opportunities for internal exchanges, further highlighting the value of safe spaces. 

For more: This need for peer exchange and knowledge building is sector wide. Building on some great national work done by organisations, Impact Europe and Philea have partnered to provide a platform to address this need, supporting the conversation from program, endowment and leadership perspectives and providing a safe space for philanthropic organisations to expand the role of impact investing in their toolbox. 

Hear more about it in the upcoming Philea Forum (27-30 May, Ghent) and don’t forget to mark your agendas for the session on: “Uncovering Foundations’ impact investing sphere – joint session by Philea and Impact Europe.”