Giving Compass' Take:

• Sherece Y. West-Scantlebury shares two biases that keep foundations and funders from aligning their purpose and investments. 

• What is holding you back from aligning your mission with your investments? How can you begin or further your shift toward impactful investments? 

• Read an impact investing guide for small foundations. 

For foundations, the path to achieving racial equity starts with a simple choice: Do you use your endowment to maintain the status quo, or do you align your investments with your mission?

When I came to Winthrop Rockefeller Foundation (WRF) in June 2007, Chief Operating and Financial Officer Andrea Dobson shared that she wanted to transform our endowment. She envisioned aligning our mission and financial investments by increasing capital access to low-wealth communities, and identifying investment firms owned and/or led by women or people of color. She also envisioned investing in venture strategies that provide capital to racially and ethnically diverse entrepreneurs, and to women.

We drew on foundation colleagues leading by example, an extensive body of literature on how to do it, and the expertise of investment managers who could help make it happen in partnership with our board.

Yet my response and the vast library of resources I share are often met with skepticism. They also reveal hidden biases. Here’s a look at two common ones and how we can leave them behind.

Bias #1: Social Equity Investing Requires Sacrificing Returns
We’ve all heard this before in the impact investing debate. But there is no strong evidence to support the assertion that social equity investing must sacrifice returns.

In fact, although WRF’s portfolio includes investments that prioritize deep impact over returns, several of the social equity investment managers in our portfolio are top-quartile performers. We are still early in building out our private social equity impact investment program, but are encouraged by initial returns in areas such as education and community development.

Bias #2: Fund Managers Led by People of Color or Women Yield Lower Returns

Here again, there is no evidence that suggests managers of color and women-led firms are less profitable than white- and male-led firms. In fact, the Knight Foundation, in partnership with Bella Research Group, updated its seminal study from May 2017 earlier this year and found that diverse-owned funds perform at a similar level to non-diverse peers. Specifically, the research investigated the distribution of performance, as well as the level at which diverse-owned firms were in the top quartile of performance. It found that diverse-owned funds perform at a similar levels to non-diverse peers across asset classes (including mutual funds, hedge funds, and private equity).

In the end, it comes down to this: Organizations either want to diversify their funds and fund managers, or they don’t. They either want to maintain the status quo, or they don’t. They either want to adapt to the evolving market, or they don’t. Those who choose to change can succeed by drawing on their commitment, discipline, and courage.

Read the full article about overcoming bias by Sherece Y. West-Scantlebury at Stanford Social Innovation Review.