Ford Foundation plans to focus on female-led managers when it deploys its diverse manager strategy outside of the US, according to head of mission investments Roy Swan.
A $16 billion private endowment, Ford Foundation has been a vocal proponent of impact investing. Its Mission Investments programme was launched in 2017 when the foundation pledged to commit $1 billion to impact investing. It has also backed a number of companies that have developed tools necessary to help impact scale-up, including impact verification platform Bluemark and data software company Novata. Most recently, Ford Foundation helped found the the Indonesia Impact Alliance.
Swan is also an influential figure in the impact and sustainability space in his own right; he sits on KKR’s Sustainability Expert Advisory Council, and was appointed to GIIN’s board of directors earlier this year.
The foundation has a US strategy focused on three areas: providing affordable rental housing for low income earners; supporting fund managers owned by underrepresented groups – particularly ethnic minorities; and securing high-quality jobs for workers at portfolio companies.
Until now, Ford Foundation’s strategy outside of its home country has focused on financial inclusion and biotech, but Swan says that it is planning to expand its diverse manager strategy to other jurisdictions. The foundation has not yet begun to make fund commitments as part of the strategy, but is exploring how it can apply a gender-focused lens to its global approach.
Swan said: “Our diverse fund manager strategy in the Global South is gender-focused. We believe that increasing the representation of women investors could be an impactful angle for us in the Global South, regardless of the specific sector. So we are thinking through how to execute on a gender lens focus.”
Housing matters
A signficant part of Ford Foundation’s impact activity relates to affordable housing. It has backed managers such as women-owned real estate impact platform MSquared, and in conversation with Swan it is clear that this is an issue that is close to his heart.
“We don’t finance self-storage facilities for humans that check a box,” he explained when asked what Ford Foundation looks for when selecting managers. “We invest in managers who seek to provide quality, affordable rental housing that the residents are proud to call home. Within that statement is the idea that we’re interested in fund managers who care.
“What that might mean is fund managers who have great reputations based on references, great relationships with municipal bodies, great relationships with community organisations, great relationships with the people who live in the buildings that they own, and a great track record of past performance.”
Swan also confirmed that the foundation has tended to favour specialist impact investors over larger private markets firms which have launched an impact strategy. MSquared and Rethink are sector specialists. Leapfrog, another of the foundation’s general partners, is a longstanding impact specialist.
“We are allocated more to specialists. For example, most of our affordable housing private equity fund managers focus on multifamily affordable rental housing. In the instances where we are not allocated to specialists, we allocate to fund managers who have added people who have a convincing reputation in the multifamily affordable rental housing niche and who made us feel comfortable with their expertise.” he explained.
Employee engagement
As part of its aim to deliver quality jobs, Ford Foundation has sought to encourage private investors to put employees front and centre of plans for businesses. It is a vocal supporter of Ownership Works, the KKR-founded non-profit that pushes investors to share the upside with employees. The foundation approved a $750,000 grant to the initiative in 2021.
Said Swan: “We really want to increase the number of private equity firms that shift from the old-fashioned playbook of cutting costs at labour’s expense to increasing the cultural elements that drive innovation, productivity and profitability.
“We believe improving business culture is how you improve employee engagement. Researchers estimate that anywhere from 70-80 percent of employees are disengaged, which researchers estimate costs the global economy $8 trillion annually. Why is that? There are lots of reasons we believe our Quality Jobs strategy, which emphasises both superior operational design and superior human capital investment, can address that and make private equity and capitalism work better for more people.”
Quantifying externalities
As well being a champion of impact investing, Swan is outspoken on how to defend against the backlash against ESG that taken place in some US states. “There’s lots of debate going on around ESG, and one way to reduce that is to actually quantify the negative and positive externalities that ESG currently discloses in a non-dollar quantified way,” he explained. “If we can quantify negative and positive externalities, it makes it better for investors, which is the whole point of ESG. So not only would you identify ESG risks via disclosures, you actually quantify the potential impact on enterprise valuation when you plug in externality values measured in dollars.”
Editor’s note: This article has been updated to reflect the fact that, while Ford Foundation has worked with ReThink, it was not in the affordable housing sector.
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