“Going All In.” The California Endowment Will Shift All of its Assets Toward Impact Investing

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Impact investing has gone from niche pursuit to mainstream philanthropic practice over the years, as more large foundations have sought to use their endowments not just to generate returns in support of grantmaking, but to invest in enterprises that align with their missions.

Today, many prominent foundations engage in impact investing, including the Bill and Melinda Gates, Ford, MacArthur, McKnight and Robert Wood Johnson foundations. But there are still relatively few that devote their full assets to making a social impact, with most participants carving out just a sliver of their prized endowments.

Now, a major health funder is choosing to “go all in.” The California Endowment has announced it will shift its entire $4 billion endowment toward impact investments in order to advance its mission of expanding access to affordable, quality healthcare for underserved individuals and communities, and improving the health of everyone in the state. 

“This is really the culmination of a number of years' work,” said TCE Board Chair Kurt Chilcott. “We spent this past year… really guiding the board through a thoughtful process and discussion to get to the point where there was both a level of comfort, but more importantly, a level of excitement for making this commitment.”

TCE sees this as a way of trying to make capitalism work for everyone and for every community. Part of that, Chilcott said, is to give more people, especially those in low-income communities, the opportunity to be owners and to build wealth as a pathway to upward mobility and generational wealth development. 

The decision follows more than a decade of previous impact investing by TCE. “This commitment has grown out of that work, which is the realization that our grant efforts are not enough to meet the needs in these communities that we have been committed to for a long time,” Chilcott said. 

The first step in bringing its entire endowment under alignment with its mission will be to develop a framework that will enable TCE to consider impact — along with traditional financial considerations — as it makes its investment decisions, according to Amy Chung, TCE's managing director of impact investing.

This will be one of CEO Robert K. Ross’ last big efforts at The California Endowment, as he will be leaving the funder later this year after more than 20 years in the role.

Building on past work

Over the past decade, TCE has taken a number of steps to accelerate and deepen its impact for communities beyond traditional grantmaking. These include things like negative screens or divesting, to avoid investments that go against its mission, which for TCE meant companies that produce tobacco products, private prisons and firearm manufacturers. The funder has also been partnering with more diverse managers, integrating sustainability considerations into the process of investing, and doing shareholder advocacy.

Following the death of George Floyd and during the ongoing COVID pandemic, TCE also issued a $300 million bond, with proceeds used to expand its grantmaking capacity. TCE has also previously allocated $350 million for program-related investments and mission-related investments.

Last year, TCE published a report that details its impact investing history. The report, “Building Trust and Equity: What The California Endowment Has Learned from Over a Decade of Impact Investing,” focuses largely on the foundation’s PRIs. While TCE's grants focus on power-building and advocacy, impact investments allow TCE to take on other approaches to support the needs of the communities it serves. According to the report, impact investing has allowed TCE to “inject capital into communities that need it the most.” 

Most of TCE's impact investing allocation consists of PRIs, which are charitable, mission-aligned, below-market-rate investments that consist of lower-cost loans that require repayment within a specific time frame. This allow the foundation to provide loans with reasonable interest rates and repayment terms for small businesses that may have difficulty securing traditional loans. They can also help support early funding that can give other investors confidence to fund the development of affordable housing community infrastructure like grocery stores. 

Since 1999, TCE has issued 56 PRIs to 41 organizations for a total of $179 million in commitments. These PRIs are typically investments in social determinants of health, including housing, access to healthy foods, health systems, small business and other community development activities. 

For example, TCE provided a five-year $7 million PRI and a PRI-aligned $500,000 grant to affordable housing developer Mercy Housing California to support its California Land Acquisition Fund, which allows MHC to better compete for opportunistic land acquisitions and decrease development time and costs. It also helps support MHC's racial equity and impact approach to its work. 

TCE also issues MRIs, which are risk-adjusted, mission-aligned investments that, unlike PRIs, seek both market-rate and social impact returns. According to Chung, TCE recently invested in Primestor, which builds affordable housing and retail in urban communities. Primestor uses a community-centered approach, engaging with the community around its needs. 

It's this work that led to TCE's commitment to aligning the entirety of its endowment toward impact investments. Chilcott cautioned that this shift will not happen immediately. “It's a long-term project that we will be at for many years, and there will be a lot of interesting developments through that process.”

Galvanizing others into action

TCE is now the largest foundation to go all- in with its impact investing. As it implements this change, it hopes to engage with and share its findings with the field. “I think one of the big things for this is that we know that as we do this work, we're going to have lessons learned about how to do this for both our institution and for others,” Chung said. 

TCE hopes that its own commitment and the steps other foundations have taken will inspire other funders to go in deeper with impact investing and rethink how its capital can be used to support its work. 

“What we hope is that not only are we successful at this, but that, in fact, we collaborate with others to join us in this. And that by doing that and by growing the scale and size of impact investing, we will drive the markets to start to take more interest in alternative financing and alternative investment that's going to make a difference for the communities that we work with,” Chilcott said.