GIA’s Investing Journey: Toward Putting our Values into Practice

Last year, 2018, was a milestone year for Grantmakers in the Arts (GIA). We relocated our operations from Seattle to The Bronx, and we had a new President & CEO in Eddie Torres, with a new team eager to build on the work of our predecessors. We had a unique opportunity to take stock of EVERYTHING that we were doing.

Among the many aspects of our operations that we reviewed, our investment strategy and portfolio were high on the list. In coming on as new, Eddie and I, along with Glyn Northington, our treasurer at the time and now current board chair, had a call to introduce ourselves to our investment managers at the time and take stock of GIA’s portfolio. On the call, we raised the idea of aligning our investments with our organizational priorities. At the spring 2018 board meeting, which followed shortly thereafter, GIA’s board discussed this alignment and enumerated several key organizational priorities that we would like to support in our investing:

• Financial empowerment for African, Latinx, Asian, Arab, and Native American (ALAANA) individuals and communities
• Financial empowerment for women
• Financial empowerment for low-income communities
• Financial empowerment for LGBTQ+ communities
• Environmental responsibility (including divestment from the fossil fuel industry)
• Fair/progressive labor practices
• Divestment from the gun & ammunition industry
• Divestment from prisons & prison labor

Eddie and I asked our client representative at our prior investment firm for recommendations as to how we could support these priorities in our investing, and he responded with a recommendation of several exchange traded funds (ETFs) that more or less align with the most basic of our priorities.

ETFs are similar to mutual funds but with some difference. Ultimately though the recommendations from our advisor only addressed some of the most mainstream of our priorities, like environmental responsibility and greater representation for women in the corporate world. It was apparent to us that our organizational priorities were not the areas of greatest strength for our investment firm at the time, that they would not be most effective in helping us with our investing priorities. Thus, the idea of changing our investment firm altogether began to take shape.

I began researching impact investing strategies of member foundations, and looked at reports from the Surdna Foundation, The McKnight Foundation, and the MacArthur Foundation. I also looked at resources from US SIF Foundation and Cornerstone Capital.

“Impact investing” has gotten a lot of attention recently, and there are a number of terms used for it that can make the subject confusing: SRI (sustainable, responsible, and impact) investing, ESG (environmental, social, and governance) investing, program-related investing, mission-related investing, and values-based investing, among others. Investment management firms often use the term “ESG investing” because they use environmental, social, and governance issues as a rating scale on which to make investment decisions.

Foundations and endowment investors often prefer to use the terms “program-related investing” and “mission-related investing” because those terms show the alignment of organizational priorities with investing strategies. The term “PRI” (program related investments) is the term defined in the US tax code as investments for which the primary purpose is to accomplish one or more of the purposes for which the investor is tax exempt. The variety of terms can make a simple idea seem complicated. The bottom line is that they all refer to investment strategies that look to generate both competitive financial returns and positive social impact.

From my research, it became clear to me that GIA could not take on the project of impact investing itself, for a couple of key reasons. One, the size of our investment is not substantial enough to have impact. GIA is a well-capitalized organization. Thanks to the foresight and careful planning of Janet Brown, GIA’s former president, and the boards and staff that worked with her, we have ample working capital and cash reserves that we can invest, as long as we keep enough cash liquid to meet our reserve policy. Still, GIA is a small, lean organization, and the assets that we have available to invest are nowhere near the size of many of our foundation members. Our assets, by themselves, are not substantial enough to make the impact we would like to see.

Two, one of the most successful elements of impact investing – active engagement – is beyond the capacity of GIA’s staff and board to take on, making managing our own assets for impact is not right for GIA. Active engagement is the process where investors actively work with the entities they invest in, by initiating shareholder proposals, engaging in proxy votes, and dialoguing with corporate leadership on issues of importance to them. This process takes a substantial amount of time and resources. Foundations that have investment management staff and/or board investment committees are doing good work by way of active engagement, but GIA doesn’t have the bandwidth to take it on within our current operating structure. It was apparent at this point that GIA would be best suited by researching a new investment management firm whose investing strategies were in alignment with our priorities and included an active engagement element. It’s better for an organization of GIA’s size to leave it to the professionals.

While I was researching impact investing, Eddie got a recommendation of a consultant from Angelique Power, president of the Field Foundation of Illinois and our then board chair. We spoke with Robert Raben, of The Raben Group, who Angelique thought might be able to offer some guidance in this process.

The Raben Group provided us with a list of firms that they thought would be of interest to us as potential investment managers.

Eddie and I then put together a matrix based on GIA’s investment and divestment goals that I could use to research the firms recommended by The Raben Group. Our thought was that I could plot each firm on the matrix and have an easily assessed scorecard to find the firms best matched to our intentions.

However, the matrix proved not to be useful as an evaluative tool. Investment firms generally do not list specifics of industries or companies they invest in or divest from on publicly available websites. They typically explain their investment philosophies in broader terms. I needed to take a more holistic approach to evaluation than we first thought, looking at investment strategies and whether the firms were using active engagement, and if so, what were the outcomes. I also looked at the composition of firms – the percentage of women and ALAANA individuals in senior positions, and I looked at company policies on diversity, inclusion, and equity.

In this way, I narrowed the search to two leading firms. Both firms used ESG criteria to evaluate potential investments, both had a strong active engagement component to their strategies, and each had a good track record of achievement with shareholder proposals and dialogue with corporate leadership. Both were women-led firms with a substantial percentage of ALAANA employees.

We decided to request a proposal from Boston Common. The fact that they are a women-led and majority employee-owned firm makes them very attractive to GIA. Employees own 80% of the company with 20% held by an external equity partner. They became a Certified B Corp in 2016 and were named a 2017 and 2018 ‘Best for the World’ honoree by the not-for-profit B Lab. The firm was founded and led by a woman of color. Foundations and endowments make up about half of their clients. They made a good fit for GIA within the priorities that we outlined for ourselves. That’s really the key to an investment firm search: outlining up front what your particular priorities are and investigating as many firms as you can in order to find one that is a good fit for those priorities.

I set up a call with a portfolio manager, who expressed an eagerness to have GIA as a client, and although our investment buy-in would be on the smaller side, she likes GIA for who we are and what we do. In her opinion, having GIA as a client will be good for Boston Common. Among the introductory documents that she sent me prior to our call was an ESG criteria document, about which I had a specific question. The criteria statement rules out investing in industries that support gambling. Gaming is one means of economic empowerment for Native communities, and I questioned whether this divestment strategy would have a negative impact on Native peoples.

She explained how the firm will not invest in publicly-traded securities of gambling companies. Native casinos would typically be funded by a bond issue rather than securities, which is an investment that Boston Common might make. I was impressed by the distinction she made, and by the readiness of her answer, which left me feeling that this was something the firm had actually thought about before I asked the question. At the end of the call, I requested a full proposal from Boston Common, which has been brought before the GIA Finance and Executive committees for review.

The process for aligning GIA’s investing with its priorities as an organization was a long and thoughtful one. I believe that GIA can feel satisfied that we will be walking our talk in our investing as well as in all the other areas in which we strive for equity and empowerment for ALAANA communities.