McKinnon Family Foundation
The McKinnon Family Foundation is a Private Ancillary Fund (PAF) established in 2006 by John and Sue McKinnon. The Foundation’s mission is focused around poverty alleviation, protection of the environment and development of social enterprises. In addition to making grants, the Foundation is committed to the responsible investment of its assets, with a percentage of its corpus currently invested in impact investments and the ultimate goal to have 100% of its portfolio in impact investments.
Impact Investing Australia talked to John McKinnon about his family’s Foundation and its experience with impact investing.
What potential do you see for your grant making to work alongside and complement your investment strategy?
There is great potential to leverage the impact of grants via investments and vice versa. The most obvious example for us is in community renewable energy. We were able to make a small grant that enabled a community organisation to produce the legal documents and infrastructure that led to several community-financed renewable energy projects. These projects then become potential investments for our Foundation.
Often philanthropy can play a role in funding feasibility studies, legal preliminaries, planning activities, pilot projects or other “pre-investment” activities that can lead to much more significant funds being invested down the track in high impact projects.
We choose between grants and investment on a “horses for courses” basis and by using each in the most appropriate situations, the total impact can be greatly enhanced.
How important is it that you can measure the social or environmental impact of your impact investments? If so, how do you do this?
We have not developed “in house” metrics to assess impact. Where possible, we look to the organisation raising funds to define their impact goals and their methodology for assessing that impact. I think it is important that investee organisations (just as for grantee organisations) do what they promised to do. In that regard, measuring impact is largely determining whether investments are doing what was promised in offer documents or pre-investment conversations. That is, is the mission being adhered to and are the goals being achieved?
In some cases, the impact is implicit. For example, it is quite obvious that investment in renewable energy is better than investment in fossil fuels and so accurate measurement is not really necessary.
As the market matures, more accurate and sophisticated measurement will become more necessary as impact investments will compete with each for places in portfolios.
What role, if any, do advisors or intermediaries play in helping you with your impact investment strategy?
We do not use advisors in any formal capacity but via the Impact Club and other informal networks share ideas, strategy and due diligence.
Initially there were few if any intermediaries in the impact investing sector and so investments tended to be individual deals. It is now pleasing to see intermediaries introducing funds that enable better diversification and scale to be achieved. We are invested in several funds – such as several of the Impact Investment Group property trusts, the Unitus Capital Livelihood Impact Fund (developing country private equity), the Murray Darling Balanced Water Fund and Foresters Social Enterprise Finance Fund – and see this as the future as it enables more investors to enter into impact investments.
One of our Foundation’s trustees works in the Investment Management Industry and can access in-house research on impact investment deals. This research is then made available to our full board.
Given your background in funds management in more mature markets, how are you seeing the market for impact investing developing in Australia?
It is developing along a couple of dimensions. On the one hand, and at the more institutional level, is the Social Impact Bond market. This is based on outsourced provision of government services and the bonds are one mechanism for an outcomes based payment for such services. We are not particularly keen on such instruments but they are set to be a growing area of investing and perhaps the entry point for larger institutions.
On the other hand, there is also a developing market place of intermediaries and fund managers offering impact products in property, private equity, loans, alternative assets (such as water or agriculture) and venture capital. We find this the more interesting part of the market. In fact, it is my hope that all investment products in the future are understood to have an impact, socially or environmentally, and investors can explicitly choose between various positive and negative impacts from their investments. That is, impact investments are not seen as some separate class of investments but rather as investments that have a positive, rather than negative, impact.
Has engaging in impact investing required any change in mindset for your Foundation? What would your main piece of advice to other PAFs and foundations interested in exploring impact investing?
Being a relatively young foundation we did not have to change from an “old school” mindset in order to undertake impact investing. It just seemed obvious to us that granting with 5% of the corpus to undo negative impacts of the investments of 95% of the corpus was a losing game.
My advice to others would be:
1. Try to be as coherent as possible in aligning investments and grants. Don’t undo with one what is done by the other.
2. Think of all investments as having impact. Forget the idea of simply assessing financial risk and return and evaluate all investments along multiple dimensions, including environmental and social impact.
3. Understand that impact investments do not necessarily involve higher risk and lower return. Just as with all other investments, impact investments come in a variety of asset classes and a variety of risk/return trade offs.
4. If you are nervous, there are low risk, “financial first” impact investment offerings available that you can start with. It does not need to be a big step to get started.
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