Inside MacArthur's Impact Investing: A Conversation With Debra Schwartz

Debra Schwartz, MacArthur FoundationWhile impact investing by foundations has lately been a red-hot topic in the philanthrosphere, it's been part of the MacArthur Foundation's work for over 30 years now. 

And by the looks of things, the foundation is doubling down in this area as it reorganizes operations under its new president, Julia Stasch. 

But what does impact investing actually look like on the ground at MacArthur? To get a sense of this, we caught up with Debra Schwartz, managing director for impact investments at the foundation. Schwartz has been with MacArthur for 20 years and has managed its impact investing for 15 years.

Schwartz crossed my radar when I learned that she would be moderating a panel at the High Water Women conference on Impact Investing, a one-day symposium held at CUNY Grad Center in New York where everything from sustainable agriculture to income inequality to successful direct investments were being discussed. Schwartz's panel was titled "Setting Impact and Portfolio Objectives: Combining Your Investment and Impact Objectives." She described the conference as providing a forum for a "vibrant and growing segment of the impact investing marketplacewomen."

To give the picture of MacArthur's impact investing, Schwartz used the example of MacArthur's groundbreaking work on housing. Over the past 15 years, MacArthur has focused impact investing on the preservation and improvement of affordable rental housing. "We've put over $200 million into this area with impact investing," said Schwartz, noting that many of the people who most need affordable rental housing are women. Schwartz pointed to two specific groups of women who are often in need of housing supportolder women living on fixed incomes, and women who are single parents.

By investing with groups like the National Church Residences and Mercy Housing, Schwartz described how MacArthur created sustainable organizations to do this work. Schwartz also talked about helping Preservation of Affordable Housing (POAH) get its start in 2001. POAH is now hugewith nearly 8,500 apartments under its management in more than 70 developments spanning across 9 states and the District of Columbia. Since 2003, MacArthur has awarded $4.5 million to POAH in grants and program-related investments.

"Within that long-term investment in affordable housing, women are a huge part of the story," said Schwartz.

While Impact Investing is its own department in MacArthur, the financial experts on this team are embedded in each of the foundation's focus areas to identify and create impact investments that align with the foundation's strategic goals. "The impact investing work we do is in addition to the grantmaking, and is intended to integrate with and enhance and deepen the impact of our grantmaking work," said Schwartz.

"We're focused on capital gaps. We look at situations where, but for our capital, all the resources might not come together to get the job done. We can have a multiplying and unlocking effect." 

MacArthur's impact investments are complex financial hybrids, said Schwartz. "You have to be prepared to blend capital between public and private sources." In doing so, says Schwartz, new opportunities for capital investment are created, giving other investors a chance they might not have been willing to take without MacArthur's role. 

"Our money is very patient. Our money is provided often without collateral, and our money is at very low cost," said Schwartz. "We provide this catalytic money that activates the other capital, and makes something investable that might not otherwise get capital."

Schwartz said she was honored to be able to participate in the High Water Women Investing Conference, and sees it as a harbinger of good things to come. In the afterglow of the conference's supercharged atmosphere, she described the scene like this: "Women investors. Women advisors. And other investors who may not be women, but who are deeply interested in women's empowerment. They are also looking for great ways to deploy their capital."

The emergence of women-focused impact investing is a new and interesting corollary to another trend we've covered at Inside Philanthropy—the rise of women philanthropists focused on women's issues.

The field of impact investing is one where Schwartz sees immense potential for women to take a strong lead. She described how High Water Women is one of several networks of impact investors through which mission-driven women investors are charging the gate. "What's exciting across the board is that there are many talented women playing leadership roles in the industry."

Schwartz acknowledged that this trend is "quite different" from what banking and investing looked like when she began her finance career in 1986. But she was cautious to note that gender equity is not the only trend affecting impact investing. 

As important as the gender lens is, I think it's equally remarkable, and maybe even more so, to look at all of the growth in mission-driven enterprises. When I went to school for finance, there were six people in the nonprofit finance program. And now you can see people coming out of MBA and law and policy programs who want to fuse finance and business with mission and purpose.

So it's really those two trends at High Water Women that you see coming together in the same room: The rise of women as a force to be reckoned with in the overall investment marketplace, and also the rise of investors of all genders that are really committed to this melding of mission and money.

It remains too early to say how MacArthur's impact investing will evolve as a result of recent changes at the foundation. Schwartz didn't say much in our conversation on what the future holds. But in her August message spelling out MacArthur's new strategy, which will emphasize "big bets," Julia Stasch suggested the foundation was incubating something dramatic on the impact investing front, building on its track record of mobilizing "unconventional capital." Stasch wrote:

We are prototyping these new vehicles with the goal of bridging the gap between social sector organizations and the increasing number of investors looking for social and environmental impact.

We expect this new endeavor to use our capital and increased risk-taking, including market-making and syndication, to give investors greater transaction ease, liquidity, confidence, and choice. We will partner with others who share our ambitious goal: to expand the flow of impact-enabling capital worldwide. 

It's unclear where things stand with this "new endeavor," or what the timing may be on any major moves by the foundation to ramp up its impact investing. But it does sound like MacArthur is gearing up for something fresh and big. 

Climate change is an obvious area where the foundation could deploy large-scale investment capital in support of one its big bets, since there are a great many private sector efforts underway that aim to curb greenhouse gas emissions. Schwartz didn't say anything specific along these lines, but did say that a member of her team is embedded in the foundation's climate group. So stay tuned.