Hands-On Investing

Grantmaking can be likened to investing. The role of strategic grantmakers can therefore be likened to that of a money manager. Instead of a financial return, foundations seek a social change, which is much harder to measure. But the concept is similar. Philanthropy invests in ideas, people and organizations. Good foundations diligently check the people and the organization and debate the ideas and missions behind them. Some investments are relatively safe – matching scholarship programs with universities for example – and others are more risky.

The Johnson Scholarship Foundation’s investment managers use different operating styles and the style is often dictated by the type of investment. At one extreme are index funds which mechanically follow the market index for whatever assets they are buying. Managers of these funds do not research or make qualitative judgments. Venture capital or specialized hedge funds can be at the other end of the spectrum. In addition to initial research they can take a seat on the company’s Board and an active role in management and operations. Their specialized knowledge and expertise is just as important as the money that they invest.

Most of the Foundation’s investment managers fall somewhere between these extremes. An equity manager might m
eet with management of a publicly traded company and monitor the company’s progress towards stated objectives. But they don’t take an active role. The Foundation’s grantmaking process also falls within this middle ground. We generally don’t get involved with telling our grantee partners what to do. In fact, we usually defer to them on the basis that they understand their business better than we do.

Should the Foundation become a more involved investor?

This question has been raised by a number of our grantee/partners. Some tell us that our advice on strategy and governance, which we continue to give, has been even more valuable than the money we invested. Our experience and assistance, in addition to our money, has been vital in helping grantees develop fundraising and scholarship programs. We continue to work hand in glove with other organizations on strategy and operational issues. One grantee has asked us to sit on an Advisory Committee its national program. Our consultants have taken leadership roles in developing proposals and have written drafts for particular projects. And still other grantees have invited us to attend Board meetings and to participate in discussions regarding programing.

For smaller, edgier projects the argument in favor of our involvement becomes more cogent. We can give badly needed advice on basic governance and strategy issues. Our presence also helps us to monitor our investment. More direct involvement in certain types of investments takes our social investment model to its next logical step.

Hands-on investing surely has its strengths and pitfalls. There is a delicate balance when it comes to supporting grantees and dictating the operations of their program. Philanthropists must defer to their better judgment, offering advice when asked and relying on the expertise of our partners when not.