NEW YORK (AP) — When the Ford Foundation took the unprecedented step in June 2020 to issue $1 billion in debt to help stabilize other nonprofits, it thrilled investors and inspired many others great foundations to follow suit.
Two years later, the foundations are sticking with all their decisions to take on long-term debt, allowing several of them to essentially double the amount of their grants. But they also warn that the move is unlikely to be repeated anytime soon.
Responding to what the MacArthur Foundation has called the “twin pandemics” of COVID-19 and systemic racism, foundations have primarily issued social bonds ranging from $100 million to Ford’s $1 billion. This unusual move allowed them to increase their donations and take advantage of favorable market conditions, instead of dipping into their endowments.
By June of this year, the Ford Foundation had spent more than 90% of the funds it raised on its bond offering alone, with 70% of grants so far going to organizations led by people of color and 87 % going to general support, which means that the funds could be spent as the organizations wish.
“It just allowed us to put steroids on something that we wanted to do anyway,” said Hilary Pennington, executive vice president of the Ford Foundation.
Greg Ratliff, senior vice president of Rockefeller Philanthropy Advisors, said the bond issue was an innovative use of foundation assets.
“It allowed them to double their annual investment in their organization, which is pretty amazing,” Ratliff said.
Ford’s bonds also qualified as social bonds, which are attractive to investors who want more ESG investing and are looking to show they have delivered benefits to their local communities. Ford will have to repay investors with interest over 30 or 50 years, depending on the bonds they bought, in exchange for having access to the extra money.
Ford’s board of directors approved the move in the face of extraordinary circumstances, Pennington said.
“If we can’t swing for the fences at a time like this and use every aspect of our resources to try to make a difference in an existential moment, why are we here?” she says.
Following Ford’s lead, the Rockefeller Foundation issued $700 million in bonds. The Bush Foundation used the $100 million from its bond issue to launch two new community trust funds focused on closing racial wealth gaps. The California Endowment worked with partners to develop plans to support movement building and health care infrastructure with the $300 million they raised through bonds.
Foundations were welcome in the bond market, said Heather Lang, senior vice president of Sustainalytics, which conducted external reviews of bond offerings for several of the foundations.
“We were excited about the arrival of foundations in space and think it’s a great choice,” she said.
But she noted that there have been no new broadcasts since that initial round. This may be because several foundations issued the social bonds to respond to the pandemic and the murder of George Floyd without having to reallocate funds from current beneficiaries, Ratliff said.
“That’s really the dilemma that this kind of social impact bond has helped them solve, because it’s given them more resources to put money into some racial justice and racial equity activities,” he said. said Ratliff.
For its part, Rockefeller has decided not to seek certification of their bonds as social bonds because some funds will go towards the renovation and construction of their offices in Washington, New York and Nairobi. These projects represent only about 10% of the $700 million debt, but make it harder for the debt to meet social bond criteria.
The foundation has committed to spending the remaining funds over 5 years and has invested a significant portion in a vehicle called Rockefeller Foundation Catalytic Capital.
Between his regular spending and the obligation, Rockefeller has funneled $650 million into the public charity, which allows them to pool funds with other donors and make different types of investments from what the foundation does.
The funds represent a massive bet on several initiatives including an institute focused on pandemic prevention and another collaboration focused on the transition to renewable energy.
Catalytic capital is another way for foundations to take risks on projects they believe are incredibly worthwhile but traditional investors can’t or won’t support, Ratliff said.
“Catalytic capital is the little wake-up call to say, ‘Let’s not give up on the very valuable charitable investment opportunities that we have as foundations, because they’re the only ones who can really do that,'” said Ratliff. (Rockefeller Philanthropy Advisors is run separately from the Rockefeller Foundation, although they were founded by the same family.)
Rockefeller Foundation treasurer and chief financial officer Dominick Impemba said the bonds are increasing pressure on the foundation’s financial performance.
“Now it’s not just the foundation money. All these investors have trusted us. And I have to answer every year to Moody’s and S&P what we’re doing, what’s going on with these funds,” he said.
Ford said some of the top initial buyers of their social bonds were insurance companies like CNA Insurance and TIAA-CREF, investment fund managers like PIMCO, JP Morgan and Blackrock and the state pension fund of the New York State. He invested because the bonds met their sustainable investing goals as “target net proceeds supporting nonprofits impacted by the COVID pandemic,” a spokesperson for the New York State Common Retirement Fund said. .
Rockefeller would not disclose the original purchasers of their bonds.
Proponents of impact investing, like Ratliff, see bonds as another way for foundations to position the bulk of their assets to align with their mission.
Ford’s Pennington acknowledged that paying off the bond puts pressure on endowment revenue, but said the foundation ultimately decided the risk was worth it.
“It kind of shows you how much we’re leaving out the value that people don’t really imagine how much more we could do if we thought a little more creatively,” she said.
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“UNPRECEDENTED” MOVEMENTS
These foundations have taken the unusual step of issuing social bonds or other debt during the pandemic:
Bush Foundation, $100 million, 2020
The California Endowment, $300 million, 2021
Doris Duke Charitable Foundation, $100 million, 2020
Ford Foundation, $1 billion, 2020
MacArthur Foundation, $125 million, 2020
Mellon Foundation, $300 million, 2020
Rockefeller Foundation, $700 million, 2020
WK Kellogg Foundation, $300 million, 2020
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