A Return on Investment

A Return on Investment

Jennifer Luk manages Tin Shing Printing, a shop that her father founded in part with a loan made possible by SFF’s impact investing work. Photo by Sarah Abbe Taylor
Staying Focused in Times of Upheaval

In 1974, during a time of record-high inflation and a 15% drop in our assets (while many other foundations experienced a one-third decline in assets), our Board Chair Emmett Solomon summed up an investment philosophy that has helped guide the San Francisco Foundation through the past 75 years: “The aim of philanthropy is the use of funds where they can be most effective, rather than the rigid conservation of capital.”

In the months leading up to the 2008 recession, the returns earned on our investments were extraordinarily positive. “Remember,” said Warren Hellman, who was then chair of our board and Investment Committee, “trees don’t grow to the sky.” Referencing a popular business adage, Hellman meant that markets have cycles, and this boom was bound to eventually have a downswing. When it took place, he and the rest of our Investment Committee were prepared and remained calm. SFF—with our focus on long-term investing—remained steadfast and continued to invest per our asset allocation targets through the market slide.

Because the recession brought devastating unemployment, hunger and displacement, CEO Sandra Hernández believed strongly that it was our job to use a portion of those positive investment returns to grant even more to Bay Area communities. That’s why we directed $5 million in grants to safety net organizations to prevent foreclosures and create jobs and developed two special initiatives: a Nonprofit Transitions Fund to help struggling nonprofits determine whether to merge or close, and a Safety Net Impact Fund, which we seeded (together with our donors) with almost $2 million.

SFF has a history of increasing the amount we grant from our endowment when times are dire in the Bay Area. By investing in emergency grantmaking and continuing our commitment to growing the endowment, we’re also investing in long-term community building and policy work that will bring about an equitable Bay Area.      

When faced with a more recent crisis—the COVID-19 pandemic, coupled with a long-overdue racial reckoning—our Board of Trustees approved an additional $10 million in grant funding to support power-building efforts in Black and Indigenous communities and communities of color in the Bay Area and throughout the state.

“Our obligation,” said Andy Ballard, SFF donor, CEO of Wiser Solutions Inc., and chair of our Investment Committee between 2013 and 2016, “is to create a situation where the fight can continue beyond our time.”

Prudent Investing Generates Financial and Social Returns 

Did You Know?

Since 2009, SFF has made over $26 million in loans to more than 25 local nonprofits whose work advances racial equity and economic inclusion in the Bay Area. Each of these nonprofits that received a loan from SFF’s loan program, the Bay Area Community Impact Fund (BACIF), has repaid the loan on time, thereby recycling capital for additional community investments.

How does an organization continue to meet this obligation? By using every tool that we have, including the ways in which we invest our assets. We understand that when donors partner with us, they’re trusting SFF to make prudent decisions that align with our mission. While responsible stewardship is certainly about growth over time, it’s also about balancing risk and ensuring that our values as a community foundation are reflected in our investment decisions.

We honor this trust by partnering with top-tier investment managers who work in concert with an industry-leading investment consultant and our Investment Committee. In previous decades, endowments and foundations had separate strategies to achieve financial and social returns. We are intentionally allocating capital to investments that do both. 

Over the course of our history, we’ve expanded our role from grantmaker to policy advocate and philanthropic partner, as well as impact investor. In 1989, we set aside 1% of our endowment for loan guarantees for nonprofit projects. We added a socially responsible investment option for donor advised funds in 2000. And in 2009, we earmarked $5 million of our endowment to make loans to Bay Area nonprofits.

To support local communities, in 2018 we made an additional $10 million investment in the Bay Area Community Impact Fund and in 2019 committed $50 million from our endowment to introduce our Mission-Aligned Investment Pool. By December 2021, contributions from our donors helped grow this pool to $120 million. This long-term investment portfolio uses a variety of socially responsible screens—such as not investing in private prisons and predatory lenders—to guide investment decisions. 

In 2022, we further deepened the alignment of our investments with our mission by allocating 1% of our Long-Term Pool and Mission-Aligned Investment Pool to the Bay Area Community Impact Fund. This will increase over time with a targeted allocation of 5% from each pool. As the allocation increases, we will make more loans that help provide affordable homes and good jobs to residents in the Bay.

Driving Returns To Better Serve Our Community

We have consistently achieved top-decile returns for our endowment through our two-decade-long partnership with Crewcial Partners, while also leading the industry with a focus on investing with firms majority-owned by women or people of color.

As of September 30, 2022, over the one, three, five, and 10-year horizons, our endowment has outperformed its benchmark—consisting of 60% MSCI All Country World Index and 40% Barclays Aggregate Bond Index—by between 2.4 percentage points (10-year annualized) and 0.8 percentage points (one-year). Comparable performance is evidenced throughout all our investments portfolios, including the Short-Term, Long-Term and Mission-Aligned Investment pools.

Landing above the benchmark by any amount is significant—especially over the long haul. As Ballard states, “The difference between financial compounding returns at 7% versus 9%, or 5% versus 7%, taken over 20 years—that’s a huge amount of impact you can have in a community.” With $1.9 billion in assets, a 1.5% difference in total returns means nearly $30 million more available to dedicate to our North Star of racial equity and economic inclusion. Given our deep commitment to addressing the Bay Area’s most pressing challenges, we never lose sight of the powerful impact of these compounding results.

The Power of Pooling Resources and Working Together

While we dedicate ourselves to careful management of all donated assets, we also believe that good stewardship encompasses more than this. It means acknowledging the power of working across sectors and actively fostering dedicated, diverse and experienced partnerships.

In 2020, for example, we co-created the Home for Good Fund together with the San Francisco Housing Accelerator Fund to allow individual donors to help San Francisco families find and keep affordable homes. The fund uses donor contributions to make loans to community developers to expand affordable housing in the city. In 2021, we worked with donor Aneel Bhusri, CEO of Workday, to invest $2.5 million in San Francisco’s African American Small Business Revolving Loan Fund to support Black-owned and Black-serving businesses that were suffering disproportionate impacts from the COVID-19 pandemic.

There is undeniable power in numbers. Just as a group of donors is more powerful than one individual, our board, team and longstanding community networks have a better chance of moving the equity agenda forward than any of these entities alone. As Ballard says, “Harnessing the resources, the knowledge, the expertise, the team at the foundation, you can be a lot more impactful than just trying to do that on your own.” 

Since augmenting impact is one of our goals, we believe pooling resources for maximum power is the most promising way forward. In the years to come, SFF will continue to carefully grow our assets, play to our strength in numbers, and work with—as Ballard aptly put it—an eye toward perpetuity.