CharitableGiving: AssetAllocation Reportingand ... · Family office clients are frequently busy...

Charitable Giving:

Asset Allocation

Reporting and

Effective Philanthropy

Nancy B. Gardiner

Marcia M. Governale

025 Charitable Giving WP 10/6/11 7:36 PM

Charitable Giving: Asset Allocation Reporting and Effective Philanthropy

T A B L E O F C O N T E N T S :

4 Executive Summary

6 Every Client is Different

7 Step One: Assessing the Client’s Investmentsand Appetite for Risk

8 Step Two: Building the Client’s “Philanthropic Portfolio” —What are the “Building Blocks?”

12 Step Three: Selecting Investment Options

15 Step Four: Identifying Other Pools of Capital Availablefor Deployment

17 Step Five: Identifying Human Capital Investments

20 Step Six: Measuring Outcomes

21 About the Authors

22 Exhibit A: Philanthropy Dashboard

24 Exhibit B: Philanthropic Planning Questionnaire



IntroductionClients rely on us for a broad range ofservices, including trust and tax planning,estate planning, asset allocation reportingand charitable giving. We provideinvestment reports that outline the variousholdings and compare and contrast theirperformance in absolute terms and againstappropriate benchmarks, statistics, etc. Thereports are useful tools for clients and for usbecause they form the basis for strategicdiscussions about goals and performance.Similar reporting on the philanthropic side isvery helpful. We can help clients answer thequestions, “how are we doing?” as well as“what are we doing?” Helping clientsunderstand the whole picture is critical totheir long-term success.

Analyzing the scope of the many charitableactivities that clients undertake in a mannersimilar to the way we track investmentperformance helps clients understand theiractivities and provides a useful planning tool.A client may have made the lead gift at theiralma mater and contributed to the local foodbank at the leadership level, but have theymade use of the various strategies availableto them? Do they have a sense of the numberof other gifts they have made or how theirvolunteer activities mesh with theirphilanthropic interests? How can they get anoverview of their activities? Family officeclients are frequently busy people trying tomanage various activities. We assist clients intracking their financial investments andprovide consolidated reporting on their stock

Executive Summary

Every donor is different. So, with dozens of philanthropic giving options available,

how might an individual or family plot a successful road map that aligns and grows

with a client’s unique abilities, needs and personality?

This paper offers a practical look at an approach to this question developed by

Hemenway & Barnes LLP, a trusted advisor to New England’s leading families for

almost 150 years. The authors detail the steps in a philanthropic asset allocation

process involving fact-finding, planning and continuing assessment as seen through

the eyes of three hypothetical clients.

It also illustrates the use of the Philanthropy Dashboard. This client-centered

planning and reporting tool, developed by Hemenway & Barnes, helps clients

evaluate their philanthropic goals and activities.

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portfolio, bond account and, perhaps, realestate or private investments. Accountappraisals and performance reporting helpindividual and family clients make strategicdecisions and plan for the future. We findthat a similar approach helps clientsunderstand their philanthropy. We encouragethem to think about apportioning charitabledollars – much the way one would allocateinvestment dollars – across asset classes, withvarying degrees of risk, alone and incollaboration with others. Reporting on andkeeping track of philanthropic activities thisway help clients understand and makedecisions about their giving and theiractivities. This kind of oversight helps thembe more effective over time.

The process begins with a discussion of theclient’s age, family situation, goals and riskprofile. Asset allocation has become morecomplex over the years as the investmentoptions for wealthy clients have expanded.There are many quantitative and qualitativecalculations involved and numerousinvestment vehicles to consider. In additionto equities and bonds (both corporate andtreasuries), the mix of potential investmentsincludes private equity, venture capital,partnerships and other strategies investedglobally, not just in the U.S.

Just as the investment portfolios of mostclients have become more complex, so toohave their charitable gifts, with clientsallocating philanthropic capital across severalasset classes. These include the “traditional”gifts out of current income, bequests and thecreation of family foundations. The numberof available vehicles has expanded to includeother charitable entities, such as donor-

advised funds and planned giving vehicles.It also includes other “buckets,” such associally responsible investments, impactinvestments and allocations to other privateinvestments. As with portfolio investing, thecharitable allocation now includes some giftsthat are “blue chip investments” and othersthat are more speculative. Donors previouslyinvested their charitable dollars alone, butnow they may join with others in donorcollaboratives or other collective efforts.The approach is both local and global.Some donors continue to focus on theavailability of the charitable income andestate tax deductions and structure theirgiving with these in mind. Others are lessinfluenced by these incentives.

At Hemenway & Barnes LLP, we report toclients on both their overall investmentstrategy and their philanthropiccommitments, whether managed here orelsewhere. This paper outlines ourphilanthropic asset allocation process. Theidea that the nonprofit world can learn fromtraditional business models is not new.Academics have long encouraged nonprofitsto model for-profit businesses in their questfor measurable results. Donors too haveincreasingly looked for demonstrated returnsfor their investments. Our approach looks atthe process from the standpoint of the donor,our client. How many investments should aclient have? How should they be allocated?What other activities make sense given theclient’s overall goals? To assist with thisapproach, we have developed a PhilanthropyDashboard, attached as Exhibit A, whichhelps clients plan and understand theirphilanthropic strategy.

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Every Client is Different

To illustrate the philanthropic investment approach in this paper, we focus on three hypotheticalclients representing separate approaches to philanthropic investment. In completing Section 1 ofthe Philanthropy Dashboard, Client Profile, each of the clients below would be described differently.

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Mr. Strong Ms. FreiholdMr. Strong is 65 years old and has had asuccessful career as a partner in a majorlaw firm in New York City. He is a loyalsupporter of his alma mater, YaleUniversity, and the Metropolitan Museumof Art in New York City. He is a man of faithand supports his church as well. He lives inNew York City and has a summer home onLong Island. By his own admission and thehistory of his giving, this client has littleappetite for philanthropic risk. He is along-term investor, pleased to supporttraditional organizations doing good work,and we would structure his philanthropicportfolio accordingly. His wife participatesin his gifts, but they do not see a need toundertake giving with their three adultchildren. Mr. and Mrs. Strong encouragetheir children to engage in philanthropicactivities on their own. Mr. Strong is carefulin his spending because his 90-year-oldmother depends upon him for some ofher support. Mr. and Mrs. Strong believethat over time a “conservative” portfoliowill return far more than will a portfoliowith a weighting in alternative assetclasses, whether financial or philanthropicin nature.

Ms. Freihold is a single woman living inCalifornia. A free spirit, at 42 she is singleand sees no need to “settle down.” Shesupports herself with income from afamily therapy practice and several largefamily trusts. Her grandfather was a verysuccessful entrepreneur and investor. Thisclient cares deeply about theenvironment, particularly the healthimpact of pesticide use. She hasestablished a small private foundationand has asked the advisors who overseethe investment of her family trusts to keepher views in mind as they invest the trustsset up by her grandfather. She also has amodest ability to make grants out of alarger private foundation established byher grandfather. She has no children andplans to leave her estate to charity in oneform or another. She lives simply, trying toreduce her carbon “footprint” by drivinga fuel-efficient car, living in a small homeand eating a vegetarian diet. Ms. Freiholdfeels a sense of urgency with regard toher philanthropic goals and iscomfortable with an “aggressive”approach to philanthropy.


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The Fortuna Family

The Fortuna family is a happy familyincluding three generations; Mr. and Mrs.Fortuna and their four children, Anne, Susan,Mike and Steve, all of whom are happilymarried with young children. Mr. and Mrs.Fortuna are in their 60s, and their childrenrange in age from 28 to 34. They live inChicago. Both Mr. and Mrs. Fortuna hadsuccessful careers, retiring early from seniormanagement positions at Procter & Gamble,where they met. Their children are allemployed, as are their spouses. The family isgenerous and likes to make joint charitablegifts to the University of Michigan, the almamater of Mr. Fortuna and three of the fourchildren. They are also very interested inmedical research, especially since one oftheir grandchildren suffers from Type 1diabetes. They have established a donor-advised fund. The Fortunas have traveledwidely and have seen firsthand the economicpotential in countries such as India andChina. Their interests have intensified sincetheir son Mike adopted a daughter fromChina several years ago. Mrs. Fortuna serveson the board of the Chicago CommunityLoan Fund, which has increased her interestin alternative investments generally. Thefamily loves sports such as golf and tennis.They like to give together, to play togetherand to win. They take the long view in someways, but in others they are impatient andanxious to see change happen quickly.Overall, they support a “balanced” approachwith an intermittent tilt to “aggressive” forthe “right” opportunity.

Step One:Assessing the Client’s Investmentsand Appetite for Risk

When working with clients, such as theindividuals and families just described,the first step in devising an appropriatephilanthropic asset allocation is to figure outwhere the donor is currently and where shewould like to be in a year, five years or tenyears. Sometimes a donor has a focusedinterest in a single issue (e.g., malnutrition,cancer, his or her alma mater, his or herreligious faith, or commemorating a familyexperience, such as surviving politicalpersecution). None of our hypotheticalclients fits into this category. Ms. Freihold isextremely interested in the impact ofvaccines on health, but she has otherinterests as well. Alternatively, a donor wishesto be a good citizen in his or her communityand advance several philanthropic interestssimultaneously (e.g., environmentalstewardship, historic preservation, renovationof a local park or restoration of a churchsteeple). All three of the clients describedpreviously fall into this category.

We start with clients in much the same wayas our colleagues and others do with newclients seeking investment advice. Ideally, wecan meet in person to go over risk tolerance,goals, areas to avoid and other factors. It isimportant to find out about clients, theirfamilies, their current holdings, plans,anticipated needs and their appetite for risk.What is their background? How do they



present themselves? Is their focus local,regional or global? What “program areas”(health? education?) interest them. Whilemeasurement of risk can be a quantitativeexercise, it is important to stand back from thenumbers and listen to the client to assess hisor her situation; after all, most philanthropy ispersonal, born of a belief, passion ormeaningful experience. What is the rightallocation given what you know about theclient? Sometimes it is helpful to start with aclient questionnaire. While this is nosubstitute for a conversation with the client, aquestionnaire helps focus the exercise. Wefind that some clients have never seen theirphilanthropic investments summarized in oneplace. They are interested to see the totalnumber of gifts they have made and theaverage size of each, for example. Prospectiveand new clients can complete thequestionnaire at the outset. The PhilanthropyDashboard is built over time and becomesthe basis for regular reporting to the client.See Philanthropy Dashboard, attached asExhibit A and Philanthropic PlanningQuestionnaire, attached as Exhibit B.

Step Two:Building the Client’s“Philanthropic Portfolio” –What are the “Building Blocks”?

Gifts can come from various “funds”whether they are earned, saved, inherited orcreated for the express purpose of giving.Examples of potential investment fundsinclude the following:

Personal GiftsMost individuals and families make personalgifts, and we have found that for manyclients the “personal gifts” investment fundis often the largest, even if they have adonor-advised fund or a private foundation.Such gifts often come about as a result of asolicitation, sometimes even a direct mailoutreach. They are often an “unmanaged”account, with many gifts made in a reactiverather than proactive way. Gifts are usuallymade out of current income used foroperating support. This is the categorywhere we see a lot of repeat gifts – annualgifts to large, national, well-known “mature”charities such as the American Red Cross orthe United Way, as well as gifts to localcharities, such as the public library orcommunity garden. While not always thecase, gifts to well-established organizationsgenerally “pay dividends,” not in thetraditional sense but in the sense that theycan be counted on to fulfill their mission andprovide philanthropic returns to donors.

All the donors above are generous and makesignificant personal charitable gifts. Ourhypothetical clients may be surprised to seehow much they are spending on all theirsmaller donations – less than $500, forexample. Over time, as they prioritize, theymay or may not wish to “tweak” the outlay inthis category. Depending on clients’ outlooks,we may advise them to concentrate theirinvestments so that they make fewer totalgrants. We may look at their choices andsuggest that they allocate among those thatare “blue chip” and guaranteed to “paydividends,” and others that may pay out overtime but not in the near term. Ms. Freihold

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would like her portfolio to hold fewer “bluechip” and more companies that might bedescribed as “cutting edge.” She is willing totake a bet on a start-up organization exploringthe long-term health impact of pesticide use,for example. By her own admission, she can’tsay no, and she makes many gifts of smallamounts to a large number of organizations.Mr. Strong is most comfortable with blue chipoperating gifts made on an annual basis. Heknows that over time he is supportingestablished organizations with solid trackrecords, and he trusts the management ofthose organizations to deploy the fundsresponsibly. The Fortunashave determined that theywill make their larger gifts towell-establishedorganizations, and makesmaller grants toorganizations that are lessmainstream, havingconcluded that a smallgrant can make a bigdifference to anorganization with a smalleroperating budget. Mr.Strong and the Fortunashave loyalty to their schoolsand institutions associated with family. These“good citizen” grants to their alma mater,church or local community organization arepart of their giving every year as well. Bothfamilies have a list of such organizations andtry not to stray too much from theorganizations on the list.

Private FoundationIf clients have substantial means and astrong desire to give, we often recommend

the creation of a private foundation, eitherduring their lifetime or as part of their estateplan. This vehicle can provide ongoingsupport for causes and organizations thatdonors care about, while providing taxadvantages to the donors. Given the detailsinvolved in creating a foundation andadministering it over time, we do notrecommend the creation of a stand-aloneprivate foundation with less than $2 millionin total assets, and in many cases it makessense to consider a donor-advised fund (seepage 10) instead. This depends on the

client’s wishes and the potential for growthor additions to the foundation over time.

With investment assets, a high net worth

individual may be a “qualified investor” and

still reject the idea of hedge fund

investments. By the same token, a family

that qualifies for the creation of a private

foundation (because of the size of their asset

base or other factors) does not necessarily

need to establish one.

While not always the case, gifts to

well-established organizations generally

“pay dividends,” not in the traditional

sense, but in the sense that they can be

counted on to fulfill their mission and

provide philanthropic returns to donors.



Of the clients listed above, Ms. Freihold isthe candidate for whom a private foundationprobably makes the most sense. She hastalked about continuing her charitablelegacy after her death, and she has nochildren. Leaving the bulk of her estate to aprivate foundation upon her death will saveestate tax and continue her philanthropiclegacy after she is gone. Planning for theadministration of the foundation after herdeath is something we would want todiscuss with her. Increasingly, donors areincorporating spend-down provisions into

their private foundation documents. GivenMs. Freihold’s inclinations, she may considerstarting the foundation during her lifetimeand providing for additional funding uponher death. The Fortunas may at some pointconsider a foundation, but they seem happyfor now with their donor-advised fund (seeright column). An advantage of a privatefoundation is that it can afford a degree ofprivacy between the donor and thecommunity. It also allows joint giving in

families, like the Fortunas, who share somany interests. This is something they canmonitor over time and decide later.

Donor-Advised FundsThese vehicles are increasingly common andprovide clients with a convenient way toorganize their charitable giving. As lifelongcorporate executives, the Fortunas haveseveral large equity positions with low basisand they typically make a single stock gifteach year to their donor-advised fund. Then,during the course of the year they canrecommend charitable gifts to various

organizations. They havefound that they like to talkabout charitable givingwith their children duringjoint summer vacations.The long, easy days andnights under the stars attheir lake house inspireconversations about issuesand concerns that theywould like to address. Thedonor-advised fund allowsthis freedom withoutconcern about timing.Whether to establish the

fund at a local community foundation or atan investment firm such as Fidelity, is aquestion for the donor to answer. Funds atcommunity foundations serve the purposeof helping the local community foundationwhile providing convenience to the donor.On the other hand, such funds may chargea higher administrative fee and may notprovide donors with as much flexibility asthey would like.

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An advantage of a private foundation

is that it can afford a degree of privacy

between the donor and the community.

It also allows joint giving in families,

like the Fortunas, who share so

many interests.


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Planned Giving StrategiesIn addition to the more traditional fundsoutlined above, donors may want to considerplanned gifts. We like to list these along withother charitable investment funds so thatclients get a full picture of the various giftsthey have made. The simplest and mosttraditional form of planned gift is a bequest.Clients who have some concerns about theadequacy of their resources during life butwho want to benefit a favorite charity at theirdeath, find this kind of long-term investmentattractive. One can think of this strategyalmost as a long-term bond: It is in theportfolio, will provide areturn and doesn’t requiresignificant attention.

Of the clients describedabove, Mr. Strong,conservative by nature anda careful steward of hisassets because of hisobligations to his mother,might find a specificbequest attractive. Oftenthe announcement of abequest intention to anorganization means that anindividual gains admission to a special“society” made up of individuals who havelet their bequest intentions become known.This kind of group affiliation is appealing. Mr.Strong might appreciate such recognition.He might also consider a charitable giftannuity for his mother, especially in thecurrent investment climate. The IRS gifttables provide that a gift annuity for anindividual who is 90 years old provides a verygenerous income stream to the annuitant.

Ms. Freihold too might be interested in aplanned giving strategy, especially becauseshe currently is single and may wish to leaveall or a portion of her estate to charity. Forher, the idea of a charitable remainder trustmay be sensible. As for the Fortunas, thecurrent interest rate environment hasincreased interest in charitable lead trusts.Given the fact that Mr. and Mrs. Fortuna havegrandchildren, they may want to considerthis strategy because it might provide agenerous charitable gift and removeproperty from their estate for tax purposes,ultimately benefiting their grandchildren.

Summary

Two of the advantages of the Philanthropy

Dashboard are that it provides consolidated

reporting on the size of each “fund” and

allows clients to adjust if they desire. Perhaps

they want to reduce their personal giving, but

increase their giving overall. Perhaps they

want to make certain gifts out of their private

foundation and others from personal funds.

Perhaps, like Ms. Freihold, they have some

Clients who have some concerns about

the adequacy of their resources during

life but who want to benefit a favorite

charity at their death, find this kind of

long-term investment attractive.



ability to make grants out of a family

foundation created by a relative. Seeing their

current and planned gift funds in one place

allows donors to get a full picture of the size

of their current and future charitable

investments. Providing a comprehensive

picture equips clients with information to

make strategic decisions about their giving.

Step Three:Selecting Investment Options

When we advise clients on investment

allocation, we frequently try to find ways to

leverage investment dollars. We have a

similar goal when advising clients on their

charitable giving. Some of the strategies are

conservative and time-tested. They appeal to

most donors. Other, more “out of the box”

strategies are more risky, but their risks are

balanced by the potential for more reward.

Within each type of investment fund, our

clients have choices regarding how to make

their charitable investments. As noted above,

personal gifts consist primarily of

contributions out of current income. However,

even within this category, clients have choices,

and the Philanthropy Dashboard allows us to

help them record and measure their

experience with various strategies.

Traditional LeverageConservative strategies with the power tomake a difference.

Challenge Grants

A challenge to other donors can leverage

giving and create great momentum for an

organization. Mr. Strong is the kind of person

who would respond to a challenge if offered

by an organization he supports. He might

even be willing to fund one under the right

circumstances. Ms. Freihold and the Fortunas

would also probably like to add this kind of

“alpha” to their traditional investment

choices. In the case of a capital gift, a

challenge can provide momentum to a

project. For over 85 years, the Kresge

Foundation has offered challenge grants as a

way to help organizations complete projects.

Other donors, both foundations and

individuals, make effective use of challenge

grants. The GreenLight Fund in Boston, for

example, which is described below in the

section on venture philanthropy, got its start

with a combination of challenge grants from

The Boston Foundation, private foundations,

and interested private and corporate

investors. It has since leveraged significant

resources to seed organizations solving

critical problems in Boston.

Capital or Endowment Gifts

Gifts to support endowment or capital

projects are important building blocks in

many portfolios. Such gifts can make a

difference in the fortune of a nonprofit

organization, and they appeal to many

donors. Some investments of this sort are

risky, and some are not. Ms. Freihold, for

example, has been asked to make an initial

capital grant to support the construction of a

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no-kill animal shelter in the town where she

lives. Stepping up to the plate as the first-in

dollars for such a project can be risky. What

happens if the rest of the funds are not

forthcoming? One strategy may be to initiate

a challenge grant (see above). She can also

provide that the funds be used for a different

purpose should the shelter fail to raise

sufficient funds for building. In a similar vein,

the Fortuna family has decided to fund an

endowment at a summer camp for children

with Type 1 diabetes after their grandson told

them of the positive experience he had at

camp. Funding this kind of

special program makes a

difference and probably

does not carry the same

level of risk as Ms. Freihold’s

gift to the shelter.

NamingSimilarly, donors who are

willing to put their name on

a project can leverage other

gifts and add momentum to

a fundraising effort. Often

gifts for capital or

endowment include naming

opportunities. All three clients described

above travel in circles where like-minded

donors will react when they see that a

friend/colleague has provided significant

support for a project. Just as in the private

sector, some donors are comfortable in the

role of “angel investor,” and some are not.

Nontraditional InvestmentsMore risk, with the potential for greater impact.

Pooled InvestmentsThere are a number of ways in which donorscan fund collaboratively, creating investmentpools to leverage their giving and work withlike-minded donors. Giving circles, forexample, allow donors to collaborate andshare ideas. The giving circles can beinformal, formed in much the way aninvestment club or book club is formedamong a group of friends. They can also bemore formal. Groups such as the Hestia Fundfor women donors in Boston and the OnePercent Foundation, committed to engaging

young donors nationally, have formed givingcircles as a way to bring donors together.The idea of pooling charitable dollars with abroad group may not appeal to all clients.The Strong family is very private and will notbe interested. The Fortuna family mightprefer to limit its group activity to theequivalent of a “family giving circle,” if at all.Ms. Freihold might take pleasure in a givingcircle composed of like-minded donors or,

Gifts to support endowment or capital

projects are important building blocks

in many portfolios. Such gifts can

make a difference in the fortune of

a nonprofit organization, and they

appeal to many donors.



more narrowly, female donors or donors whoshare her political perspective.

In addition to giving circles, funders whoshare a common grantmaking purpose mayestablish a collaborative. Donors cometogether in a variety of ways, choosing topool learning, information or dollars. Some ofthe venture philanthropy work describedbelow is structured in a funder-collaborativefashion. Members of the Working Group onEducation Organizing (WGEO) are alsomembers of Grantmakers for Education andhave formed a learning network to focus on

organizing communities for the purpose ofschool reform. The Partnership for HigherEducation in Africa, which is made up ofseven private foundations, shares informationand collaborates on some grants, but itsmembers make grants independently. Donorsto the Four Freedoms Fund, which focuses onimmigration reform and immigrant civicengagement and integration, meet regularlyto conduct site visits, vote on grantees and

make grants together, much like the learningcircles described above.

Venture PhilanthropyIncreasing Potential LeverageJust as the venture world has changedfinancial investing, the field of “venturephilanthropy” has grown in recent years andhas an impact on philanthropy. The goals ofventure philanthropy are similar to those ofventure investing generally. Through thisstrategy, donors can provide nonprofitslonger-term capital commitments, strategicadvice and professional relationships. New

Profit, Inc., a nationalventure philanthropy fund,was formed in 1998 andprovides support toinnovative socialentrepreneurs andtheir organizations.The GreenLight Fund,noted above, providesseed capital to bringorganizations with proventrack records to Boston tosolve critical problems. Itprovides an opportunityfor individual investors to

make financial commitments as well as othercontributions.

While all three clients described above arequalified to add this “alpha” to theirphilanthropic portfolios, it will not appeal toall of them. As with nontraditional oralternative investments, these strategies arenot for every donor. A donor such as Mr.Strong who is very conservative in hisoutlook might not be interested in models

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The goals of venture philanthropy are

similar to those of venture investing

generally. Through this strategy, donors

can provide nonprofits longer-term

capital commitments, strategic advice

and professional relationships.


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that are a bit “off the grid.” Ms. Freiholdmay have the most interest because of herapproach to risk and her availability toattend meetings and participate. She alsohas the resources and the temperament toaccept that not all of her charitableinvestments will bear fruit.

GeographyMost clients take a global approach tofinancial investing, and many clients have asimilar viewpoint when it comes to theirphilanthropy. We work with clients to decidewhat the geographical focus of theirphilanthropy will be, andthe PhilanthropyDashboard allows donorsto monitor theirgeographical reach. It alsohelps them measure theirsupport for “hometown”favorites against otherorganizations that arefarther afield.

Step Four:Identifying OtherPools of Capital Available forDeployment

For clients who want their giving to extendbeyond their donations of charitable dollars,we can recommend deploying other pools ofcapital. This is not a new idea. For a numberof years, some clients have directed advisorsto invest funds in a manner that is consistentwith their political or other beliefs. The

conventional wisdom was that, while this kindof socially responsible investing waspossible, clients would sacrifice returns inorder to stay true to their political and socialbeliefs. In recent years, as this more activistapproach to investing has become moremainstream, the overall investment climatehas changed, and the returns have in somecases matched or exceeded the financialreturns on some more traditionalinvestments. Clients sometimes feel that theycan at least bank on some return, albeit notnecessarily a financial one, viewing their

charitable investments as “multiple bottom-

line” investments. We include investments

such as these as part of the Philanthropy

Dashboard because they are among the

various tools available to clients who wish to

have an impact. One of the advantages of

the Philanthropy Dashboard is that it allows

us to have conversations with clients not only

about their current activities but also about

strategies that they might consider.

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One of the advantages of the

Philanthropy Dashboard is that it allows

us to have conversations with clients

not only about their current activities

but also about strategies that they

might consider.



Socially Responsible Investments (SRIs)Socially responsible investing has grownrapidly in popularity worldwide. In fact, theSocial Investment Forum has estimated thatapproximately 12% of all assets underprofessional management in the UnitedStates were involved in socially responsibleinvesting at the start of 2010. Tools such asthe Domini Social Index and KLS GlobalSustainability Index, and related subindices,help investors and their managers. To theextent that clients engage in this kind ofinvesting, the Philanthropy Dashboardallows them to track the activity alongsidetheir more traditional grantmaking activities.

Impact InvestmentsIn addition to SRIs, which generally applynegative screens, clients are increasinglydrawn to the field of impact investing, whichaims to solve social or environmentalchallenges while generating market or close-to-market rate returns. There are now anumber of ways to participate in and measuresuch investments. Global Impact InvestingNetwork, for example, is a nonprofit

organization dedicated to increasing theeffectiveness of impact investing. Ms.Freihold is interested in exploring impactinvestments related to healthy food, and theFortunas see impact investing as a tool thatthey may employ for the international“sleeve” of their philanthropic investments.

Social Impact BondsA relatively new type of impact investment,social impact bonds are not bonds in thetraditional sense, because they do notprovide a fixed rate of return. Instead, asocial impact bond is essentially a contract

with the public sector inwhich the investors make acommitment to pay forimproved social outcomes.Repayment to investors iscontingent upon certainsocial outcomes beingachieved by the project.Although the idea ofsocial impact bonds hasrecently garnered muchattention in the UnitedStates, few opportunitiesto invest in these types ofprojects currently exist.

However, these opportunities may increasein the future, because President Obama hasrequested $100 million to finance a pilotstudy on social impact bonds in the fiscalyear 2012 budget. In addition, in May 2011,the Commonwealth of MassachusettsExecutive Office for Administration andFinance issued a request for information onsocial innovation contracts, including socialimpact bonds.

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These funds screen their investments

for certain socially responsible criteria

of interest to their investors, such as

environmental impact, human rights

and workplace conditions.


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Community InvestingCommunity investing allows clients to supportdevelopment in economically challengedcommunities, through CommunityDevelopment Financial Institutions (CDFIs) suchas banks, loan funds, and credit unions. TheCDFIs make below-market loans to individuals,businesses or other organizations to supportdevelopment in the local community. CDFIs usea variety of mechanisms to help protect aclient’s investment, including careful selectionof borrowers, technical assistance to borrowersand maintenance of loan loss reserves.Community investing can be as easy asopening a bank account at a communitydevelopment bank or credit union or investingin a community development loan fund such asthe New Hampshire Community Loan Fund orthe Chicago Community Loan Fund. As notedabove, Mrs. Fortuna is a member of the boardof the Chicago Community Loan Fund and hasmade investments in the local communitythrough this vehicle.

MicrofinanceOur clients are aware that the microfinancestrategy has become an accepted investmentapproach not only in the developing worldbut also in the U.S. Certain organizationsproviding microfinancing to individualsaccept donations, such as ACCIONInternational. Other ways to supportmicrofinance as a strategy include investingin a microfinance venture capital fund, suchas the ACCION Global Bridge Fund, whichmakes small loans through ACCION affiliatesto entrepreneurs worldwide. There areopportunities to support microfinanceoperations in the United States as well. Intheir travels, the Fortunas have seen the

impact that microloans can have. Ms.Freihold has read about microfinance and isinterested to learn more.

Socially Responsible Mutual FundsSocially responsible mutual funds are anadditional vehicle for socially responsibleinvestment and are growing in popularity.These funds screen their investments forcertain socially responsible criteria of interestto their investors, such as environmentalimpact, human rights and workplaceconditions. For example, the Ariel Fund, anapproximately $2.2 billion sociallyresponsible mutual fund managed by ArielCapital Management based in Chicago, hasa $1,000 minimum investment for individuals.Another example of a socially responsiblemutual fund is the Pax World Balanced Fund,an approximately $2 billion fund that is partof the Pax World Mutual Funds family basedin Portsmouth, New Hampshire.

Step Five:Identifying Human CapitalInvestments

Our clients generally apply more thanfinancial resources to the organizations theysupport. As with financial investments, there isa range of possible investments, dependingon client resources and interest. We considerthese “human capital” investments as part ofthe philanthropic balance sheet, and they areincluded on the Philanthropy Dashboard as away for clients to measure their owneffectiveness as philanthropists.

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VolunteeringThis can be as formal as service on theboard of directors of a nonprofit or asinformal as serving meals at a homelessshelter, attending an annual fundraiser orparticipating in a “walkathon” or road race.All the clients listed above have beenoffered the opportunity to serve on a localboard of directors. Mrs. Strong serves on avolunteer committee at the MetropolitanMuseum of Art, and Mr. Strong serves on theboard of the private school that their sonsattended in New York City. They have limitedtheir volunteer activities because they have

been busy with other pursuits and becausethey prefer a more private approach tophilanthropy. They also live in New York City,where the competition for such roles issignificant. Ms. Freihold has served on theboards of local organizations but finds thatthe structure of board service and the needto attend meetings regularly do not meshwith her lifestyle. She is interested involunteering in other ways. The Fortunas areall involved in one form or another with

nonprofit board service at schools attendedby family members and other organizations.They enjoy the camaraderie of board serviceand encourage their adult children tovolunteer as well.

Short of board service, lending one’s name,resources and energy to an organization or acause can leverage additional support. Allthe clients described above have circles ofinfluence. Their willingness to leverage theirhuman capital is an important aspect of theirinvestment “portfolio.” Whether it is Ms.Freihold’s participation in a walk to end

childhood hunger or theStrongs’ purchase of atable at the annual dinnerdance, these clients seethat they can involve theirfriends, spread the word,and improve the prospectsof the organizations andcauses that are meaningfulto them.

Social VenturePartners (SVPs)

This model combines

investment, pooled

investment and volunteering in one activity.

Created in Seattle in the late 1990s, SVP

brings organizations and individuals

together to improve nonprofit effectiveness,

borrowing from the venture capital

principles of the engaged investment of

money, resources and business expertise.

Now an international organization with a

goal of having 100 SVPs by 2020, this model

offers an opportunity for clients to


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Short of board service, lending one’s

name, resources and energy to an

organization or a cause can leverage

additional support. All the clients

described above have circles of

influence.


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collaborate with other donor investors to

fund nonprofits and volunteer in leadership

roles in a way that ideally creates

measurable results. Ms. Freihold is involved

in the SVP chapter in San Francisco, where

she lives.

Shareholder ActivismAnother activity that clients may want toengage in as part of their overallphilanthropic investment is the voting ofshareholder resolutions for or againstvarious initiatives. In the past, brokersfrequently voted shares infavor of management, ifvoted at all. Recently,individual investors havebegun to take a role. Forexample, for the 2011proxy season, DominiInvestments, a leader inshareholder activism in theUnited States, filed 12shareholder proposals.Although the expertsdisagree on the impactthat shareholderresolutions have oncorporate governance and behavior, atthe very least these resolutions serve todraw the public’s and the investmentcommunity’s attention to these issues andthe issuer’s response (or lack thereof).Noting this as a potential activity to trackunder the category of human capital appealsto Ms. Freihold, who has a sense of urgencyand does not want to leave one “stoneunturned” in her quest to improve the worldduring her lifetime.

Lifestyle ChoicesClients can add to their philanthropicimpact by making certain choices in theirpersonal lives. While these may not “movethe needle” beyond their own family, theycan improve client outlook or “investorsentiment.” Ms. Freihold has chosen avegetarian lifestyle and drives a hybrid car.This contributes to her sense of well-being.She feels that she is doing her part toreduce her carbon footprint. Similarly,Mr. and Mrs. Fortuna have decided todownsize, selling the large house that theylived in while they raised their children.

Like Ms. Freihold, the Fortunas want toreduce their carbon footprint. While theirchoices may not change the world, theyderive satisfaction from knowing that theyare making a contribution by means of thechoices that they make in the areas of diet,housing and use of volunteer hours. TheStrongs are very health-conscious and havemade the decision to eat only organic meatand vegetables. They have an income thatallows them to pay the premium for such

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Another activity that clients may want

to engage in as part of their overall

philanthropic investment is the voting

of shareholder resolutions for or against

various initiatives.



items, and they feel that they will helpsustain organic farmers and allow them toultimately devise more cost effective waysto deliver their products.

Family LegacyThe phrase “think globally, act locally”resonates with our clients. The Fortunas andthe Strongs care deeply about conveying tothe next generation their sense ofcommitment to community. When a familyasks “how they are doing” this includes theirquestions about long-term investments inthe human capital of family. This can alsoextend to friends. When we talk with clientsabout their desire to “have an impact,” thisis necessarily part of the discussion.

Step Six:Measuring Outcomes

Our goals are to help clients understand thescope of their activity and to track andmeasure their progress against goals. Thereare a number of ways to look at this. At themost basic level, clients want to know thattheir investments are being put to good use.The level of reporting back to the donordepends on the size and complexity of thegift. When working with clients who makesignificant gifts, we like to see some kind ofprogress report from the grantee comingback to the donor. The definition of“significant” depends, of course, on thedonor and the organization. A client whomakes a larger or more complex gift,

whether it is a capital commitment, achallenge grant, or a planned or multi-yeargift, for example, would expect to have arelationship with the grantee to understandthe progress of the project. Clients also wantto understand their impact on a sector orcommunity. This goes beyond progressreports and requires careful analysis.

We also like to take a moment to talk withclients about how their investments lookoverall. This conversation sometimes takesplace at quarterly client meetings or duringcalls where we can discuss all the client’sinvestments. Are they taking advantage ofthe various strategies available to them?Have they engaged the next generation in away that is consistent with their values? Havethey prepared for family transitions? Asnoted above, the exercise involves bothquantitative and qualitative analyses. ThePhilanthropy Dashboard is a tool only, but itis well-known that the way to get a job doneis to have the right tool for the workinvolved. The Philanthropy Dashboardallows clients to look at their philanthropicinvestments in a larger framework and allowsthem to see all of their activities in oneplace; whether they are charitable giving,board service or personal volunteeractivities. It provides a consolidated reportfor clients who have numerous bottom lines– a common theme in the area ofphilanthropic investment. In short, it allowsus to help clients answer the questions,“How am I doing?” and “What am I doing?”– critical questions for donors in today’scomplicated world.

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About the Authors

Nancy B. GardinerPartner, Director of Philanthropyand Family Office Services

Nancy Gardiner works with families on

governance, succession and all facets

of family office creation, operation

and management. She also advises

individuals and families on all aspects

of charitable giving, including the

creation of charitable vehicles such

as private foundations, research,

succession planning, and structuring

of individual and family gifts. Nancy

also counsels development offices on

issues relating to major gifts.

Marcia M. GovernaleAssociate

Marcia M. Governale works with the

Hemenway & Barnes Business Law

Group representing businesses at all

phases of development in equity and

debt financing transactions, mergers

and acquisitions, technology licensing

arrangements, commercial lending

transactions, corporate restructurings

and governance, and general

commercial transactions. Marcia also

works with the firm’s Nonprofit Group

on a variety of matters, including

formation of tax-exempt

organizations, regulatory compliance

and contract negotiation.

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