Methods to Transition Your Funding Portfolio Towards Influence

If you are trying to figure out how to transition an investment portfolio towards impact investing in 2019, you are in luck: The practice has gone mainstream, and a wealth of information about it can be found from resources including GIIN, Omidyar Network, Confluence Philanthropy and PRI.

For would-be impact investors who don’t want to spend weeks or months wading through the materials, we’re here to help. We evaluated dozens of case studies, industry reports, online and offline discussions, and our own experiences to collect the insights from innovators and early adopters.

How deep did we go? We reviewed 46 transition case studies and webinars. Fifty percent of them were produced by foundations ranging from $10 million to $50 billion in assets under management, and 30 percent were provided by investment managers and advisors. The remainder came from pension funds, family offices, and industry organizations, such as TONIIC.

Yet it’s also important to know what we don’t know. To keep driving the industry forward, we also identified the steps impact investors should take next that could inspire another round of useful case studies.

Let’s begin with the most important lessons about getting ready for an impact portfolio:

1. Market-rate returns are possible for all types of investors. Several foundations and endowments said the most difficult hurdle they had to overcome with their stakeholders was the idea that they had to sacrifice returns to make a real impact. Yet all of the impact investors who sought market-rate returns succeeded in achieving that goal. That said, it won’t happen overnight. Depending on your investment strategy and resources, it could take a few weeks to a few years. However, there is no need to re-invent the wheel. If you are thinking of a specific solution for your needs, the odds are that it already exists.

2. Impact investing is still investing. There are no guarantees in traditional investing, nor are there in impact investing. You still have to weigh the risks of any impact investment as critically as you would a traditional investment.

3. Don’t wait for perfect measurement. Many of the endowments and foundations we studied expressed frustration with the lack of comparability and uniformity among existing impact measurement tools. Don’t let this hold you back choose a metric and get on with it! With the adoption of the Impact Management Project and UN Sustainable Development Goals (SDGs) in the past couple of years, there are more widely adopted systems than ever before. Even without them, investors we researched successfully built and tracked an impact portfolio despite a diverse toolset and conflicting methodologies. Furthermore, measurement will only improve as more investors enter the space, providing another reason to get started now.

4. Collaborate and leverage the industry. Throughout our research, one theme remained constant: Transitioning a portfolio to impact requires a wide range of expertise. Good news: There is no need to go it alone. The impact investing industry is highly collaborative, with many firms, investors, and individuals willing to share their skills with new entrants. Partner with people who have been around the block. Some of the largest foundations we studied relied on consultants and advisors to help with transitioning.

5. Be ready for a spike in engagement. Conversations about moving toward impact investing will change routine interactions with boards, investment committees, beneficiaries, trustees, and other stakeholders. Be prepared to get and keep all of them behind the transition. That means setting aside more time for interactions and increasing the frequency of meetings. It is also crucial to have the right type and level of resources in place to make full use of this opportunity.

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