Picture Above: Sonja Velez, CFO of The San Francisco Foundation, offers keynote address at Confluence’s 2nd Annual Advisor’s Forum, sharing the San Francisco Foundation’s approach to impact investing and key lessons learned.

Blog by Sonja Velez, CFO of The San Francisco Foundation

The San Francisco Foundation is a community foundation that has served the San Francisco Bay Area since 1948. Our holistic approach to our “north star” – advancing racial equity and economic inclusion – incorporates grantmaking, donor engagement, advocacy, and multi-sector partnerships, as well as impact investing. Diligent stewardship of the $1.5 billion in assets entrusted to us through endowed and donor advised funds enables us to make a greater impact in the region.

Our commitment to impact investing began in 1989 with a loan program for nonprofits. In 2009, our Board created a $5 million impact fund for direct loans to nonprofits, which was matched by commitments from donor advised funds.  Earlier this year, we allocated an additional $10 million to the Bay Area Community Impact Fund, with the goal of growing our program to $30 million, in partnership with our donors, and tripling our local impact investments over the next few years. With $23 million committed to the fund so far, we are well on our way.

In addition to expanding our program-related investments, we launched a new Mission-Aligned Investments Pool with $50 million from our endowment in March. Since then, we’ve added an additional $22 million from donor advised funds. We initially invested in liquid, public funds ranging from sustainable equity funds to an impact bond fund. We anticipate adding private mission-related investments in the near future in order to deepen our local impact.

Together with this new portfolio, we have been able to apply a mission lens to more than a third of our total assets as the managers who oversee $430 million of our existing investments have also agreed to invest in harmony with our mission and values, which include avoiding for-profit prisons, predatory lenders, fossil fuels, tobacco, and firearms retailers.

Across all of our portfolios, we’re committed to seeking out diverse managers. This focus has enabled us to reach a level of diversity that’s well above the industry average: thirty percent of our investments are now managed by firms that are majority owned by women or people of color. While we are proud of the progress we’ve made to date, we also recognize the need to continue diversifying the managers with whom we work.

From our recent impact investing expansion, we’d like to share a few key takeaways:

1. Don’t Let Perfect Become the Enemy of Good

It was important to us to take timely action. After researching our options and consulting with a number of peer organizations, we made a commitment to expand our impact investments this year, rather than waiting to resolve every question that surfaced along the way. With the launch of our mission-aligned fund, we have a proof of concept that will enable us to learn and find ways to further leverage our investments to support our mission. For us, this meant being willing to move at different paces in different areas of our portfolios (e.g. separately managed accounts versus commingled funds).

2. Look Beneath the Surface

Our investment consultant helped provide insight into the underlying holdings of our fund managers so we could identify potential misalignment. We often ask our managers how they consider ESG factors, knowing that ESG definitions and use vary greatly. We will consider hiring certain emerging investment managers with shorter performance records to achieve our mission objectives, and tolerate some tracking differences compared with standard benchmarks that don’t have the same exclusions and intentional inclusions. Overall, we believe that consideration of ESG factors and manager diversity can contribute to performance and reduce our portfolio risk.

3. Assign Decision Input and Ownership

Our Board governs our investment policies, and our expert investment committee makes investment decisions with input from our outside consultant, who leads financial due diligence. As we got into questions of values and social impact, we recognized that it was also important to bring program and donor input to the table. We created a structure whereby our department leaders weigh in on the social impact of mission investments by taking into account our programmatic goals, providing key input to the investment committee.

4. Partner for Success

Compared with traditional investing, selecting impact investments and monitoring performance requires even greater rigor. While investments in internal staff and tools are enabling us to implement our plans effectively, we also leveraged many resources in the mission investing community to help us in the strategy formulation phase. We brought in a team of UC Berkeley MBA students to work with us as part of their Impact Investing Practicum through the Haas Center for Responsible Business. The partnership was a success, and I hope other foundations will benefit from working with students who are eager to contribute field research to impact investing projects. We also leaned on other foundations that were willing to share their experience in improving investment manager diversity and mission alignment, and measuring impact.

We are grateful for the ways that our sector continues to inspire us to engage in ethical and equitable investing.

Sonja Velez is CFO of The San Francisco Foundation, where she oversees financial planning and analysis, accounting, tax, investment administration, and impact investments. Prior to joining The San Francisco Foundation, Sonja worked as an independent management consultant for mission-driven organizations including her previous employer, The Democratic Voice of Burma, where she served as CFO while living in Burma. Earlier, Sonja spent 13 years at Charles Schwab in San Francisco in a variety of roles including overseeing corporate planning and analysis, managing the firm’s capital and liquidity, and leading analysis of client acquisition, retention, and operational strategies. She holds an MBA from UC Berkeley, an MFA from the University of San Francisco, and an undergraduate degree in International Relations from UC Davis.