Deciding to pursue mission-related investing is just the first step on a long journey. Once a foundation has made the choice, it’s key to identify the right partner: an investment advisor who understands your mission and can guide your institution through the process.
To help support this process, Eric Stephenson, Director of Client Services at Align Impact, moderated a webinar discussion about how to choose a values-aligned investment advisor. He spoke with Lenora Suki, Board Member, of the Jessie Smith Noyes Foundation; Philip Carey, Trustee, of the Sapelo Foundation; and Heather Martin, Board Member, of the Edwards Mother Earth Foundation. The group discussed which questions to ask prospective, new or existing investment advisors, and shared stories from each of their respective foundations’ unique journeys. The insights proved useful not just to asset managers and foundations but to advisors seeking to better understand their clients as well.
Jessie Smith Noyes Foundation recently concluded an open advisor search after reviewing 30+ advisors. Board member Lenora Suki said that first, a foundation should ensure that the advisor is aligned with the foundation’s values, which can be achieved through carefully articulating the mission focus in the request for proposals (RFP) and investment policy statement (IPS). She also recommends having an open dialogue with prospective advisors to understand their unique approach towards client relationships and values alignment. This could be a long process: at Jessie Smith Noyes Foundation, the board discussed what to look for in an advisor for nearly six months.
Suki feels that portfolio discipline in an advisor is paramount—the advisor should be able to help the client meet its financial goals by helping them to identify their asset allocation strategy, sharing insights about the performance outlook, and making investment decisions based on the client’s risk appetite. Selecting an advisor is just the beginning of the process, she says. The industry is constantly evolving, and the journey towards increasing alignment is iterative and never ending.
When Sapelo Foundation, a place-based foundation in Georgia focused on social justice, added a 5% SRI (socially responsible investing) mandate in its policy statement a decade ago, foundation Trustee Philip Carey embarked upon a personal journey to learn more about the topic. He soon realized that aligning a foundation’s mission with its investments not only increases impact but also reduces risk. A turning point came when Sapelo realized that they were providing grants to fight two natural gas companies’ plans to build a pipeline in Georgia, while simultaneously owning those same companies’ stocks in their portfolio! Since then, they have increased their SRI and ESG allocations to 30% of their portfolio.
Sapelo realized that even though they had already begun to implement ESG strategies in a broad way, the approach did not quite support alignment with the foundation’s mission. The board then searched to identify another advisor. The foundation received 11 proposals in a closed process. In order to remove bias, each investment committee member was asked to scan all the applications and conduct due diligence on specific questions rather than dividing these among committee members. The goal was to correct for potential bias. All firms were ranked on a variety of metrics important to the mission, and the final three were invited for further discussion.
“An advisor relationship is not only about discussing asset allocations and target return,” Carey says. “It’s means a long-term partnership requiring familiarity with the client’s mission and priorities.” Thus, the board needs to consider factors such as the age of the advisory team, their succession plan, and financial stability to make sure that the firm can sustain a long-term relationship.
Board Member Heather Martin explained that though they shared a strong bond with their existing advisor, he was not willing to consider basic investment screening. Strategic consultant, Impact Finance, helped the organization identify the criteria and process for selecting a new firm. This helped the foundation narrow down the candidates to three investment managers. They finally settled on an advisor who thought outside the box and was transparent in their communication. “Communication is key: an advisor should be willing to educate the board in the investment practice,” she said
Reporting on impact was another major consideration: foundations emphasized the value of advisors who can use appropriate frameworks to report on the impact of investments, depending on client’s needs. For example, advisors should be able to map the performance of diverse classes of investments across various impact themes. Moreover, advisors need to be part of the discussion about how to constantly increase alignment between mission and financial performance while learning from both types of “impact.”
The webinar concluded with some pieces of advice for investors and advisors alike. For advisors: clearly communicate expertise around areas of impact. Investors should be clear about their risk-tolerance and investment goals, and, if possible, what metrics matter? Carey highlighted that a lot of foundations have gone through this journey, and investors should reach out to learn from peers, such as those found at Confluence.
Participants agreed that advisors and their clients need to develop strong relationships, and that it’s important to learn together during this long, shared journey towards greater impact.
