Impact investing offers new directions for philanthropists

There are plenty of ways for high net worth philanthropists to invest in causes they believe in beyond just funding grants. Nonprofits, investors, philanthropists, and foundation managers met to discuss them at a two-day conference presented by Morgan Stanley and The Social impact Exchange.

The theme for The Exchange 2018 conference was how philanthropy can help lead an era of cross-sector collaboration. There were a variety of panels and break-out discussion sessions held under Chatham House rules that discussed cross collaborations between the private and public sectors targeted to funding social justice initiatives, investing in improving education in communities, and economic mobility.

“People are already using the power of the purse ... The products are catching up with the ideology.” - Melanie Schnoll Begun, managing director and head of philanthropy management at Morgan Stanley.

Panelists at the second day plenary session agreed that cross-sector collaborations strengthen the impact and sustainability of all groups involved. These collaborations must also be more than just an organization reaching out to several others and giving demands. You have to devise a plan for outreach and take small risks, the panelists explained. It’s also best to put people closest to the problem at the forefront of an organization’s research process instead of always hiring experts to come in and assess, they said.

During a breakout session, Steven Godeke, chair of the Jessie Smith Noyes Foundation board, spoke about how impact investing has grown in popularity. These investments – which are intended to yield a social or environmental impact along with a financial return – are a way to add variety to how philanthropists and private sector groups invest in causes they care about, he said on May 24, the final day of the conference.

Godeke said impact investing used to feel very niche. He recounted how he and other fund managers or fund chairs would briefly summarize impact investing at events years ago. Now as more institutions and philanthropists have become interested, impact investing has become a significant topic unto itself.

“The big shift has been in the last two or three years as large financial institutions in New York see it as an opportunity,” Godeke said.

In particular,  Godeke has seen investors consider putting their money in low-interest loans like the Contact Fund which allows investors to put low-risk loan capital into organizations that help low-income communities in New York. Philanthropists have also invested in Fund for the City of New York, which has partnered with nonprofits and government agencies to support various causes.  

In larger cities like New York, the large number of funds and organizations make for more investment options. But it can also make it a challenge for clients to find out what they’d like to invest in or where to collaborate with others. Godeke has seen some institutions create impact investing options for their high net worth clients.  

“It’s a clear business opportunity for large financial institutions,” Godeke said.

Melanie Schnoll Begun, managing director and head of philanthropy management at Morgan Stanley, said her company looks at various areas where additional funds can make a big difference such as social justice, the environment and healthcare. She encourages clients to look at causes they have supported before and consider how to make a return on their donations.

“It’s the result of thinking how do we allocate 100 percent of capital to issues we care about,” she said.   

Morgan Stanley also actively looks for organizations that have products they can show their clients. At the end of every year, the company releases a pamphlet of products that nonprofits and for-profit organizations sell to support their missions like clothing, sleepwear, and bags. Schnoll Begun loves the Feed tote bag she purchased that supports communities dealing with food insecurity. She has noticed a significant increase in clients making investments in nonprofits and for-profit organizations that make things like clothing and household products to fund a variety of efforts like better schools.

She said that this form of investing is already becoming a trend that popular brands are using to market themselves.

“People are already using the power of the purse,” Schnoll Begun said. “The products are catching up with the ideology.”