Unfreezing the Foundation Asset Landscape to Create a Liquid Capital Market

Abstract

This paper asks how foundation assets can be invested for greater social impact without sacrificing financial return objectives - for example, by investing in social enterprises. In organizing the socio-economic activity outside the public sector two options are generally available. At one end of the spectrum, businesses usually incorporate as privately held, profit-maximizing entities. At the other end, organizations that have a charitable purpose incorporate as non-profit entities. By giving up the profit motive and adopting a social purpose these non-profits are endowed with special privileges such as exemption from taxation in many jurisdictions. This fundamental differentiation has remained in place for several decades, during which the social sector has grown immensely in scale and ambition. Today it functions not only in niche areas, but also with support from private philanthropists and individuals is pushing the barriers of social service provision. Social enterprise has emerged as the new frontier and typically relies on market mechanisms to work toward goals that are not purely or even primarily financial. The paper argues for the development of program related investment friendly vehicles and discusses two examples.

Keywords: Philanthropy, foundations, program related investment

JEL Classification: L31