Foundations Making 'Impact Investments' See Positive Returns

Some foundations are seeing positive returns from their investments in ventures that aim to reap both social and financial benefits, the New York Times reports.

Take the W.K. Kellogg Foundation in Battle Creek, Michigan, which has been making so-called impact investments since 2007 and invested $5 million in educational software company Wireless Generation in 2010. More than seven months later the company was bought by News Corporation for $360 million, yielding a 25.9 percent return for the foundation.

"The customer and market insights that the private companies we've invested in have, whether it be in food, health care, financial institutions, or education, sharpened our ability to target our grantmaking and public policy efforts," Kellogg Foundation CEO Sterling K. Speirn told the Times. "Similarly, I think the companies we have invested in are able to leverage not only our patient capital but the different kind of knowledge assets we bring to the relationship."

According to the Times, the rise in impact investing has been spurred by next-generation philanthropists such as Microsoft co-founder Bill Gates and his wife, Melinda, and AOL founder Steve Case and his wife, Jean, who argue that philanthropy alone cannot solve the world's problems. But critics of the approach point out that many of the problems addressed by nonprofits are the result of market failures, and they worry that such problems will be overlooked by those trying to produce financial returns. Similarly, Philanthrocapitalism co-author Matthew Bishop cautions that impact investing could experience growing pains as it gains traction with philanthropists, as was the case with the microfinance movement before it.

"We need to harness the best of both the capital markets and the social sector to address problems we cannot solve inside the two silos," said Nonprofit Finance Fund CEO Antony Bugg-Levine. "The ensuing confusion is a small price to pay if what it ends up in is adaptations that bring some sustainability to our social endeavors."

Stephanie Strom. "In New Brand of Philanthropy, Nonprofits Invest in For-Profits." New York Times 12/11/2012.