Ford Foundation Is an Unlikely Convert to ‘Impact’ Investing

From The New York Times

 By James B. Stewart

Peter A. Nadosy is a pillar of the Wall Street establishment — he spent 27 years at Morgan Stanley, rising to vice chairman. He served a stint managing the endowment at Harvard, his alma mater, and he’s also a life trustee and member of the investment committee at Amherst College. He’s on multiple boards of nonprofit institutions, including the Doris Duke Charitable Foundation and St. Andrew’s Dune Church in Southampton, N.Y.

He is, in short, about the last person you’d expect to throw his support behind an investment strategy that makes fossil-fuel divestment — something Mr. Nadosy opposes — look tame by comparison. Yet, as chairman of the Ford Foundation’s investment committee, which oversees the foundation’s $12 billion-plus endowment, he’s now in the vanguard of an approach to endowment management that breaks with generations of investment orthodoxy.

Last week, the foundation announced that it would commit $1 billion to investments that “earn not only attractive financial returns but concrete social returns as well,” as it said in a news release.

“When we first started talking about this nine months ago, I was very wary,” Mr. Nadosy told me. “I’m on 10 different boards and investment committees. It’s deeply ingrained that your goal is to maximize returns, because that’s how performance is measured.”

“Everywhere I go, people want to know, ‘What quartile are you in?’” he added. “Like it or not, that’s the world we live in.”

arning high returns isn’t just a matter of bragging rights — endowment income supports the missions of nonprofit institutions, whether education, as with college and universities, or broader social programs, as at many private foundations. By law, tax-exempt foundations must spend at least 5 percent of their endowment every year on charitable purposes. In Ford’s case, that amounts to over $600 million.

If endowment returns do not exceed the 5 percent annual spending rate, they will gradually wither, and can eventually disappear, which is why many investment committees view protecting endowments as a near-sacred duty. That’s the main reason the student-led movement for fossil-fuel divestment has gotten such a cold shoulder at many large endowments.