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.

Unleashing the Power of the 95%

Caption TK

In the early 1990s, I was a junior financial analyst for Citibank. I just graduated with a Bachelors degree from New York University, Stern School of Business and was ready to hit Wall Street. Back then there was no impact investing field, no Environment, Social, and Governance (ESG) investing and no conversations on how extractive financial practices enable deep poverty and inequity. I didn’t last that long in my job. I needed and wanted to work in a field that actually creates long-term systemic impact that stays accountable to the communities they aim to serve.

The last eighteen years, I have been working in the social justice philanthropic field and have done significant donor organizing to push the needle in funding women, girls, and LGBT rights in the U.S and globally. Most of the institutions I have worked at have tried to do their grantmaking with integrity and accountability.

The progress has been slow and steady to unlock more funding for social justice organizations to do the deep work of ending structural injustices. But it is now time for philanthropic institutions to look internally and at their endowments where 95% of its wealth is locked up, and unleash its potential towards a more generative, sustainable, and just economy.

For the past thirty years, Jessie Smith Noyes Foundation has been at the leading edge of funding grassroots organizing in the United States. We are a philanthropic institution that keeps pushing the field to do better, whether it is in social justice grantmaking or aligning its endowment towards social justice goals. At Noyes, we have a mantra that the activation of our endowment — the 95% of our investment capital — MUST be mission-aligned. This concept isn’t the norm because many foundations believe that mission-aligned investing doesn’t equal increased financial return and will diminish its asset base.

However, there are numerous studies that have shown that impact investments can outperform the market. Demand for socially responsible funds and investments are also being driven by many millennials with wealth who are demanding their traditional wealth managers to look at these financial vehicles. At its core, the impact investing field is trying to bring finance back to balance that seeks a socially and environment just society.

I believe justice-oriented philanthropic institutions that aren’t using a mission-aligned investing approach are obstructing the effectiveness of the social justice field.

At Noyes, we seek to invest our $65 million endowment in companies that provide commercial solutions to major social and environmental problems and/or build corporate culture geared toward advancing equity, opportunity, and community.

The Foundation will consider:

  • The environmental impact of a business by its use of materials, generation of waste, and the goods it produces or services it provides;
  • Issues of corporate governance, including selection of directors, role of independent directors, diversity on the board and executive team, compensation policies, relations with labor unions, employee benefits programs or other demonstrated commitments to the well–being of all individuals involved in an enterprise; and
  • A corporation’s openness and accountability to all stakeholders, its local job creation, its corporate giving to and active involvement with community organizations, or its other initiatives that provide net benefits to the local economy.

With the fierce urgency of now, we’ve also leveraged our power as asset holders to push the investment advisor community to think more deeply and critically about how to advance the field of social impact investing.

In fact, in our recent search for a mission- and values-aligned investment advisor, we used the LOI process to pose questions to the investment advisor community about the future of social justice investing, and the appropriate strategies for achieving truly equitable returns. The Noyes board was hopeful that this search will help educate the Foundation on the state of the impact investing field and the options for an investment manager that can provide comprehensive services as well as secure involvement from the Foundation board and staff in investment selection and criteria that is mission aligned.

Given the accelerated pace of innovation and growth in the sustainable, responsible and impact investing field; we had an open call to the investment community to provide letters of interest as the first stage of our advisor search. We asked some critical questions in this phase:

  • What does “social justice investing” look like now and in the future?
  • What does corporate accountability mean in an era of globalization of capital and supply chains? How does this translate into portfolio selection?
  • How can our mission aligned investment portfolio drive the creation of systemic impact in the areas of social justice, equality, human rights, health, and diversity?
  • How can the practices and culture of our investment advisors and fund managers embody our values and mission of social justice and equality?
  • What investment resources do the grassroots social justice organizations, Noyes support need in order to develop sustainable and viable operations?

The board also decided to share the results of the broader field questions with the philanthropic and investment community. In June, we released a report of the key takeaways from our investment advisor search that provides a snapshot of the current state of the investment advisor community’s ability to integrate social impact into the investment process. At a high level, the process confirmed two broad observations about the world of investment advisors for foundation investments.

First, impact investing services are proliferating that combines traditional portfolio management discipline and access to products with commercial returns. This debunks the theory that impacting investing is niche.

Second, the investment advisor field lacks diversity whether internally and/or a diversity of managers in firms’ databases. The investment profession remains overwhelmingly white and has a way to go in reflecting the diversity of America, where the population of African-Americans, Hispanics, Asians and other people of color is growing. More than 79% of the 434,000 financial advisers in the nation are white with people of color representing 27.7% of financial analysts, 26.7% of accountants and 35.3% of tax preparers, according to U.S. Census data.

Ultimately, working with investment advisors will require active engagement and open communication about our aspirations for organizational change in the industry and our firm belief in social justice investing.

Noyes will have to continue to be a financial activist in the impact investing field and ask directed questions on race and gender, the social and environmental value-add of particular investment managers, and ways to engage low-resourced communities into the work to make it truly accountable and have real impact.

The urgency of now — from immigrant families being torn apart to the criminalization and divestment of low-resourced communities — compels the Noyes Foundation to keep pushing within our grantmaking and investments to become more committed, knowledgeable and skilled for justice and equity. I hope that anyone working on foundation endowment management will critically explore the full activation of mission aligned investing for long-term systemic change. Please join me on this investment journey to regenerate our land, invest in people powered solutions, and build a beloved community.

This post was written by Rini Banerjee, Interim Executive Director at Jessie Smith Noyes Foundation, and originally published as part of “Liberate Philanthropy,” a new blog series curated by Justice Funders to re-imagine and practice philanthropy free of its current constraints — the accumulation and privatization of wealth, and the centralization of power and control — to one that redistributes wealth, democratizes power and shifts economic control to communities. Throughout the series, we will be sharing stories from some of our most forward thinking, transformational leaders in philanthropy about how they are facilitating a Just Transition for philanthropy.