The New Philanthropists. Jim Toscano Toscano Advisors, LLC

Transcription

1 The New Philanthropists Jim Toscano Toscano Advisors, LLC

2 The New Philanthropists In society, there is a growing attitude to look at all endeavors in terms of impact. There are many origins: long ago Peter Drucker stated: When you find a unique opportunity to make a real difference, you focus on it and constantly reassess results. This is discipline

3 The New Philanthropy A very large expansion of resources for societal good is occurring, involving: Individuals Foundations Corporations Government Others The results of this changing environment will have a profound effect on our nonprofit sector.

4 The New Philanthropists This new mentality is spreading to all sectors of society supporting social change. The bottom line: move the envelope, make a positive impact on an important societal condition. And measure the impact. Here s where the financial investment folks, especially the Hedge fund quants, have emerged as intellectual leaders and activists. The Robin Hood Foundation is one result of this. GiveWell is another.

5 The New Philanthropists What about traditional philanthropy? There s a mixed message. The projections for 2015 are bullish, with, perhaps, a 7% increase in donations. At the same time, we see a narrowing of charitable focus by both major donors, foundations and corporations. Surveys also indicate overall donor retention down to a low of 39% What s Up? More money but going different places?

6 The New Philanthropists These groups will not accept anything except scalable solutions and cures. They re impatient, risk-takers, metrical. They see what they do as an investment in society, not a charitable act. In fact, it matters not to many whether their investment is a grant or donation, a loan or a purchase of stock. It s the impact that they re seeking.

7 The New Commitment Here s what s happening: The New Impact Investors, the New Philanthropists know: OR 1. Currently 2% of GDP goes to nonprofits % of GDP is needed in the right places for significant impact on societal ills. 3. The right places are determined by a number of factors, but must include return on investment, WHETHER CHARITABLE NOT!

8 The New Philanthropists The focus on Results in nonprofits has led gradually to a larger focus, with a decidedly empirical basis. We went from Outputs to Results to Outcomeswhat we want to achieve. Now we are dealing with Impact-what we wish to affect, to change. For example, some of the leading foundations have taken up the Impact banner: Gates, Rockefeller, McKnight, Heron, to name just a few, all treating Impact somewhat differently.

9 The Foundations Foundations have gone over the last fifty years from expecting their grantees to report on outputs, then results, then outcomes, now impact. Traditionally, foundations have made dents in some major societal problems, rarely solving them. Now, we have seen Foundations teaming up with governments, nonprofits and corporations and others to cure certain long-standing conditions, especially in the health care area. Gates is an excellent example.

10 The Foundations We also have a change in thinking. Under the IRS rules, Foundations must pay out an average of 5% of their corpus. But what about the other 95%, plus the interest made on it? Traditionally the funds are invested in a broad swath of stocks, bonds, real estate, private equities, alternative investments, hedge funds. Now, those foundations mentioned and others are putting a percentage of their corpus into social impact investments.

11 The E. B. Heron Foundation Mission to help people and communities help themselves. $300m corpus, 25M payout, 100% of endowment in play. Assess social performance of investments along with market Tax status agnostic Investments, e.g. DBL Investors, venture capital Grants to transform direct care. Investment in recycled paper that is totally recyclable.

12 Government Ever since the 1960 s government has been privatizing certain aspects of traditional government work, while maintaining the responsibility through contracts and grants, largely with nonprofit corporations. Now, we are seeing instruments such as Social Impact bonds, with elements of risk for nonprofits and investors, coming into play. The Obama administration is introducing Impact measurement on increasing numbers of contracts with all elements in society.

13 The Investment Side: Individuals : and Institutions You can go to Goldman Sachs, and a number of other financial houses, and invest in social impact mutual funds and stocks Impact investing: investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return" Market research is also showing that consumers will buy products from companies that they see having a positive impact on the society.

14 The Potential: Individuals Money For Good reported that approximately $50B charitable dollars could be available for Impact investing. Of the $50B, half would be in funds shifted from current agencies, with another $25B in new money. Add to that the billions of investment funds that might go to double and triple bottom line forprofits.

15 The New Philanthropists. Certainly the distinction between for- and not for-profit is diminishing. Will the distinction be totally gone one day with total emphasis on societal impact.? We see the rise of the triple bottom line startups. The low profit companies are also out there, as are the B-Corps, recently approved in Minnesota. All have Missions partially similar to nonprofits, along with a profit motivation. What will the role of the non-profit be in the future with all of these competing elements?

16 The New Philanthropists More of the new breed are younger, although boomers began the movement. Sources of wealth are also influencing the new impact investors. Money is only one of the resources being invested. Everyone of these groups, individuals, foundations, corporations and the Obama administration are seeking impact.

17 The Centrality of Measurement The influence of Edna McConnell Clark Foundation s David Hunter s performance management methodology using metrics to evaluate proposals and nonprofit performance. Empirical measurement will dominate all aspects of valuation. For the nonprofit sector, it s time to have more MBAs and fiscal analysts on board, not because of business but because of the need to empirically demonstrate impact. It s already done in nonprofit healthcare and nonprofit higher education

18 Case Study: The Robin Hood Foundation Founded by Hedge Fund principals and still dominated by them, RHF has: Invested over $1B in approximately 200 of the 29,000 nonprofits in New York City Determination of where to invest is through monetization of potential outcomes for return on investment. Moving toward a focus on education as the best return on investment to break the cycle of poverty

19 Case Study, continued: The Robin Hood Foundation Considering investing in a program to double high school graduation rates from 40% to 80% over four years. Take into account cost of intervention as an investment to produce results with a x-fold return. Look at difference in lifetime income for high school graduates, life span, Qaly s, offset by counterfactualization.

20 The Growing Trend Longer history of microloans and microgrants worldwide. New is a wider focus on the creation of wealth to break the cycle of poverty, going beyond loans and grants. New also is the idea of leverage: low interest leans, buying down points on commercial loans, using credits, multipliers. Leverage is used not only for individuals, but for communities: e.g. a grocery story in a poverty area, a bank, a post office, food-growing sites.

21 Case study: North Minneapolis Proposal: Looking for both venture capital and foundation grants, loans and investments. Large facility: hydroponic, aqua-ponic plant to raise tilapia fish; waste to help feed green plants Front of facility: grocery store, bank? Post office? Production, retail, banking and government jobs Need grocery story with fresh fish, greens Center for community action.

22 Where Does This Leave Nonprofits? With more resources available, it makes sense to learn what is needed: Measurement Analytics Big Data Clear Impact For profit subs? What Else?