Foundation North Looks for Impact

Investment News, 8 July 2018: http://investmentnews.co.nz/investment-news/foundation-north-looks-for-impact/

The $1.3 billion plus Foundation North has flagged a move into impact investing along with a new report on the sector published late in June.


In a release, Chloe Harwood, Foundation North strategy and innovation manager, said the nascent impact-investing sector in NZ was starting to gather steam.


“Impact investment may prove to be another useful tool that can be used to enhance the lives of all the people of our region,” Harwood said.


“Foundation North will be learning alongside other investors and their impact investment partners, about how best to use this type of funding in the New Zealand context.”


The two-part Foundation North-commissioned report – providing an overview of impact investing and potential ‘engagement’ strategies for charitable funds – says the NZ not-for-profit sector generates about $20 billion of revenue each year.


“Funding from the philanthropic sector, however, even alongside public spending added, is not able to keep up with the demands of increasing social and environmental issues,” the report says.


“… impact investment represents an opportunity to expand the capital base available to the social impact sector.”


But only a handful of impact-investing projects have launched in NZ including the Impact Enterprise Fund (IEF), which closed off its first fund-raising round this February at $8 million. The IEF is a collaboration between New Ground Capital and the Ākina Foundation (which co-authored the report along with Foundation North subsidiary, the Centre for Social Impact).

“Demand for impact investment services in New Zealand indicates that the market is under-served both in terms of appropriate and aligned investment capital, and technical support to access investment,” the study says.


Part two of the report outlines practical ways for NPFs to access impact investing opportunities including: managed funds; community development finance institutions; social impact bonds; direct investment; investment clubs; and catalytic investment – such as offering credit guarantees or public/private partnerships.


The report also highlights some of the risks and barriers to impact investing including whether accepting lower returns would breach trustee fiduciary duties.


“An important question that stems from these duties is whether trustees are required to maximise the financial return of each investment for present and future beneficiaries, or whether they may accept a lower than market-rate return for some individual investments in favour of a social return that benefits beneficiaries in lieu of maximising profits and then granting the proceeds,” the report says.


“… If trustees carefully, and with professional advice, undertake impact investments with below market-rate returns and take reasonable steps to ensure that this does not diminish the real value of the trust’s assets in perpetuity, it is unlikely that there would be a breach of trust.”

The Foundation North report says despite the dearth of impact investing opportunities in NZ the demand among NPFs would only accelerate.


“This has resulted in a number of parties beginning to build investment infrastructure including managed investment funds, social finance intermediaries and social impact bonds,” the report says. “This new activity is only starting to scratch the surface of the demand. Much more will be required in order to make investment an accessible and efficient option for social sector organisations.”


Foundation North, previously known as the ASB Community Trust, is the largest charitable fund in Australasia.


The grant-making organisation reported funds under management of about $1.3 billion as at March 31 last year invested across a range of 26 – mostly offshore – managers selected by asset consultant, Cambridge Associates.


According to the 2017 Foundation North accounts, about $1 billion of the group’s funds have some currency risk exposure.


The fund splits the portfolio into four asset categories comprising: growth (48 per cent); diversification (23 per cent); inflation-hedging (10 per cent); and, deflation-hedging (19 per cent).

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