Q&A: Finding an External Investment Advisor
Earlier this year, we shared the process we followed to seek a new external investment advisor, including both the actual call for letters of interest and an analysis of those who responded. In transparently sharing these processes and learnings, we aim to help other foundations who decide that hiring a new and/or outside advisor is the right path.
Here is a Q&A with Lenora Suki, Chair of the Finance Committee, on finding an external investment advisor
Q: The Jessie Smith Noyes Foundation has long cared about how its endowment is invested. What prompted you to undertake a search for a new, external investment advisor now?
A: In 1992 the Noyes Foundation started its work to align the investment of the endowment with the organization’s values. Now more than 25 years later, we found we could deepen our work to align our $65 million endowment with our mission to build a socially and environmentally just society. We believe fundamentally that 100% of our assets should promote our values.
In recent years with investor demand for impact investing growing exponentially, we have also seen increasing availability of investment vehicles that promise to meet our impact goals, with attractive financial returns. In addition, we observed that more firms are able to provide comprehensive and disciplined asset management, including impact investing, to mission- aligned foundations like Noyes. When the Foundation transitioned to new executive leadership and brought on new Board members with impact investing expertise, we wanted to see what opportunities the market’s evolution might present for us.
Q: Did you consider bringing this role in-house instead of using an external investment advisor?
A: Honestly, we didn’t really think about taking it in-house at any point. For a foundation of our size, the economics of an internal CIO doesn’t pencil out. We also believed that we could influence the market by publicly articulating our demand for impact investments that advance social justice in an Open Call for Letters of Interest from investment advisors and consultants. We hoped to use this search to have additional impact on the industry. With an eye toward that impact on market participants, we have also shared our learnings from that investment advisor search in a more in-depth white paper: Building Power Across the Impact Investment Field: Key Takeaways from Our Investment Advisor Search.
Q: How did you come up with the questions included in the open call?
A: Before issuing our call for letters of interest, it was critical for the Board to internally align on our values, goals, and organizational capacity. For instance, we knew we were asking challenging questions about the intersection of social justice and investing.
We had to consider how these questions would be received and what they would communicate about Noyes as an asset owner and potential client. We also knew that the responses wouldtest our bandwidth and add complexity to how we evaluated participating firms, as would writing a white paper as a volunteer Board.
In the end, the Finance Committee — which includes experts in sustainable, responsible, and impact investing — led development of our assessment framework.
Q: What response did you get?
A: We received 34 formal letters of interest, primarily from Registered Investment Advisors (RIAs) but also from multi-family offices, consultants, and banks. Respondents ranged from mainstream investment firms to self-identified, highly focused impact investing specialists. See the full list of respondents here..
It was notable that most of the investment solutions presented focused on two ends of the investment spectrum — public equities and small, private impact investments. We were pleasantly surprised to see a range of thematic investment opportunities and responses that embrace shareholder engagement.
Q: How did you evaluate the applicants?
A: The Finance Committee assessed each letter of interest against
a five-part evaluation framework that included questions regarding each firm’s structure, service offering, advisor team, potential conflicts of interest, fees, and capacity in impact investing. The framework also evaluated the firms based on their understanding of social justice issues and impact investing. The top 5 finalists were invited to respond to a more in-depth RFP and then interviewed. We knew that the sophistication of responses on social justice investing might vary widely and so were open to the range of ideas from more traditional to innovative.
Q: What challenges did you encounter?
A: I would highlight three things. First, we were eager to tap the expertise of investment consultants and develop a partnership with our investment consultant, one that would create value in both directions. Noyes also maintains discretion over investment decisions, so we were not open to fully outsourcing investment decision-making. Only a fraction of advisors were open to the high-touch partnership we were looking for.
Second, given our goal to align our entire endowment with our mission, we needed an advisory firm that could provide solutions across asset classes. That ruled out respondents offering specialized impact investing capabilities that would address only a piece of our portfolio.
Last but certainly not least, many firms that claim expertise in impact investments that advance gender and racial equality lack diversity in their own leadership. Of the 34 firms that submitted letters of interest, only four were minority-led and just a quarter were led by women.
Q: What advice can you offer to families seeking an external investment advisor to achieve their impact investing goals?
A: The pool of options available to mission-aligned investors is significant and growing, so for those new to building a mission-aligned endowment, it means the path forward will
be smoother than in the past. The process of bringing our endowment investments into line with our mission continues to be demanding, however. Working with advisors and consultants requires active engagement from the Foundation to understand the breadth of available ESG and impact investing products, and it demands communicating openly about aspirations for organizational change in the industry.
This was originally published in The Omidyar Network’s Building an Impact Investing Team guide.
