The following is a conversation between Margaret Trilli, Chief Executive Officer and Chief Investment Officer of ImpactAssets, and Denver Frederick, the Host of The Business of Giving.
Denver: In 2010, ImpactAssets was spun out of Calvert Impact Capital in recognition of the growing need to increase flows of capital to the world’s greatest challenges. And since its inception, it has become the leading facilitator of direct impact investing within donor-advised funds.
Welcome to The Business of Giving, Margret!
Margret: Thank you so much for having me. It’s a pleasure to be here.
The thing we’re most known for is the donor-advised fund, which famously enables the majority of the corpus to be, at minimum, aligned with the values that you’re trying to support, and not working against them.
Denver: Well, let’s start by having you tell us a little bit more about the history of the organization and of the work of ImpactAssets.
Margret: ImpactAssets was born out of Calvert, as you said, about 11 years ago. It was spun out as a nonprofit impact investing firm, and back then and today, ImpactAssets offers a number of products and services to galvanize and catalyze capital towards impact investing.
The thing we’re most known for is the donor-advised fund, which famously enables the majority of the corpus to be, at minimum, aligned with the values that you’re trying to support, and not working against them.
And in the most ambitious scenarios, all those dollars are working toward the goal just as strongly as your grantmaking. And the nice thing about investing is that if you do it well, those dollars come back, and they can do another tour of duty and have impact again.
Denver: That’s fantastic. And you guys came to be about, as you said, 10-, 11 years ago, just really when donor-advised funds began to explode. Give us a little bit of the history of donor-advised funds, and what’s been responsible for its incredible growth over the course of the last 10 or 15 years?
Margret: Donor-advised funds are structured as an alternative to a foundation. And both vehicles are set up so that when the donor has a large liquidity event–so they sell a business or something–and there’s a huge chunk of money that they eventually want to send to charity at some point but don’t have the plan for that yet, there’s this vehicle to capture that. They get the tax write-off right then, and then over time, they can give away those assets.
Both vehicles are set up so that the donor can decide how those assets are invested. And some of them are legacy endowments, meaning they want those assets to exist in perpetuity, and they only want to give away the investment growth. So that if $100 million was donated initially, they want it to stay at about $100 million. If that grows 5% a year, then that $5 million of growth is what they give away. And sometimes they’ll spend down. And both vehicles operate the same way.
Donor-advised funds have different tax levels that you can give away a larger percentage of your income in a donor-advised fund. There’s a lot of things that are similar about the vehicles. In many cases, it’s advantaged that way. It’s, in my opinion, a more cost-effective way to do your administration.
So, in a foundation, the donor’s responsible for setting up all of the infrastructure, all of the administration, paying all the bills, creating a board to oversee it. And in the donor-advised fund, all of that is done for the donor at a much lower cost. And it’s not the fun work. The fun work is giving the money away or investing the money, and the donor-advised fund does that.
So, the two structures are very different. There, for many reasons, I think the donor-advised fund is the way to go.
Denver: And you certainly have a niche there because donor-advised funds, as we said, are growing and growing and growing. And impact investing is what your specialty is. Unlike some of the other donor-advised funds, you really hone in on that.
And I know it’s impossible to generalize, Margret, so I’ll ask you to do so – that’s what I do here. Who is your impact investor? A typical to the extent they exist. Are they institutions? Are they individuals, Republicans or Democrats? Are they old? Are they young? Are they high impact or high return? Do you have a little sense of the archetype of people who come and invest with ImpactAssets?
Margret: The answer is E, all of the above. We actually do cater to old, young, risk-taking, non-risk-taking, people who are looking to generate a high return, people who just want to get their money back, people who want to spend it down.
We work with individuals. The organization has a history of democratizing impact investing, so we’ll take a very low account size. And we also work with some of the largest family offices in the country, as well as large foundations who use a donor-advised fund in concert with a foundation to do their impact investing.
And so, they may have already had the foundation set up, and the donor-advised fund takes away all that administration, which is even more difficult when you’re starting to do impact investing.
That you have to give up returns to do good with your money. Or that you have to take outsized risks. It’s up to you to decide what your investment parameters are and what your impact parameters are.
Denver: Margaret, if there was one common misperception or myth about impact investing that you could clear up right now, what would that be?
Margret: That you have to give up returns to do good with your money. Or that you have to take outsized risks. It’s up to you to decide what your investment parameters are and what your impact parameters are.
And what I enjoy about impact investing is that it is a really fun, intellectual challenge to try to serve both strategies at once. Certainly, there are people who do give up return and do take outsized risks, but that’s a choice. And it’s just a fallacy that you have to do that.
Denver: Concessionary returns we hear about, but that actually is only a sliver sometimes and not the entire field. And that is really… and some of these funds have done exceedingly well; they’ve done better than just your traditional funds, and particularly at times of recessions and difficult other periods.
Right now, are there certain areas, particular sectors, where a significant amount of impact investing capital is being deployed?
Margret: Yes. So there are some areas that are really investible with really strong returns. Typically, climate solutions. So, clean energy or infrastructure projects are terrific risk/reward equations and outsized impact on climate change.
In the last 12 to 18 months, we’ve certainly seen a surge in interest in racial equity and gender equity investing. So, lending to people who are left out of our capital markets because it takes credit ratings, which means you have to have credit in order to get credit, in order to get a loan. And it takes money to make money. And because some people don’t start with that credit rating, they just don’t have access to capital. So, there’s a huge push to moving capital to places where it just gets stuck otherwise.
And we saw last year a huge amount of capital flow to pandemic-related causes. Sometimes that was in the healthcare sector, so it could have been a PPE or vaccinations or therapeutics. It also took the form of resilience or recovery in lending to small businesses, like restaurants and bars who were just closed because of shutdowns when the pandemic had an outsized economic impact.
Denver: How does the news of the day impact this? And you’re out in San Francisco right now, so the first thing that comes to my mind are wildfires. When people see things on their television sets or maybe out their window, depending on where you live, does that really impact how those flows… how they go?
Margret: Absolutely. We see that anytime you see a Hurricane Katrina or something that… whether it’s weather-related or it’s a movement, elections and all kinds of other things influence the theme of the day. Those all really tend to not just affect where money flows, but also the volume of flows. So, in 2020, we saw a 400% increase in flows from week to week, just depending on what was happening in the news.
It was really addressing the health crisis as well as the economic crisis. And we took a really good look at what the public response was, and what the private sector response was, and where there were gaps in the middle. And so, the fund and everything we did there was aimed at the gaps that only philanthropy or impact investing can fill.
Denver: You mentioned a moment ago – COVID. You established the ImpactAssets COVID Response Fund, and that was sort of a hybrid, I guess, between fast-action charitable giving and some flexible impact investing. Tell us what the inflows and outflows from that were.
Margret: We had a number of things happen during COVID. We had our clients asking us: What do we do? How do we help? And we really had to get smart very quickly on all of the factors contributing to the state of the pandemic.
And as I mentioned, it was really addressing the health crisis as well as the economic crisis. And we took a really good look at what the public response was, and what the private sector response was, and where there were gaps in the middle. And so, the fund and everything we did there was aimed at the gaps that only philanthropy or impact investing can fill.
And we had a tremendous response from our clients. We had a tremendous response from our corporate partners. And we deployed capital to things like organizations that were helping small makers around the globe make PPE, aggregate their supplies so that they could become global suppliers to the big purchasers. So, you’re actually solving two problems – the PPE shortage problem and the economic opportunity problem.
We did make investments in some of the healthcare-related options, mainly in therapeutics. The generics were not getting any attention because they didn’t make money for big pharma.
Denver: That’s right. But they’re proven, and they’re safe.
Margret: They’re proven, and they’re safe, and they’re on the two-yard line. They’re so close to being viable solutions, and yet nobody was investing in them. And so, there were a number of things that we helped to get into emergency authorization, and we’re really proud of that work as well.
And then we did quite a bit of lending to communities, particularly small businesses, but also individuals as well.
Denver: I think you had something like 200 custom investment deals worth some $200 million?
Margret: That’s right. That is a combination of the work we did through the funds as well as our clients making individual recommendations in our partnership. And we also raised just short of $3 million for an organization called Stop the Spread.
Denver: Ken Chenault wasn’t that? Wasn’t it Ken Chenault?
Margret: Yes, Ken Chenault and I think also…
Denver: I remember reading that op-ed.
Margret: Yes, that’s right. They started it really as a public-private partnership to really galvanize the private sector. And they were doing such great work but were really buckling under the burden of setting up a nonprofit. And as it turns out, it’s much easier to set up a company than it is a nonprofit.
And so, we, in the moment, just rose to the occasion and took them on as a program in ImpactAssets, which saved them all that work. And then we continued to help fundraise for that organization. And the organization pivoted multiple times as the pandemic unfolded, really following that gap between public and private sector response, and now recently is working on the vaccination gaps. When really it started with getting supply to where demand was, now it’s really demand creation and trying to get to that 70% herd immunity that we know we need. There’s so many folks who don’t have access to vaccinations.
Denver: Nice to have a young, nimble organization like that that can pivot that quickly as needed.
As you know Margret, Senators Angus King of Maine and Charles Grassley of Iowa – they’ve introduced the Accelerating Charitable Efforts Act or ACE Act. And there are a number of provisions that are in that. But the central one is that money that’s contributed to a donor-advised fund has to be granted to a charity within 15 years in order to receive all the tax benefits that are associated with that contribution.
What’s your take on that legislation?
Margret: Well, I think it’s born out of some really good-hearted folks who are concerned about maybe a small number of people who’ve sequestered some capital.
I think when we actually get into the mechanics of how giving happens and how impact really happens, we have to be considering that organizations do make multiple-year pledges… that if you get to the end of that 15-year period, what if you want to support a program for somebody that extends beyond that? Like how does that happen? There’s just so many complications and nuances to that.
I’m confident we’ll work it out. And impact investing is contemplated, and it’s a really, really good way of having impact faster. And we support whatever legislation reform that happens there, and we think we offer a really good solution to making that happen.
Denver: And for impact investing to really realize its potential, we need some field building. And I know that ImpactAssets is doing that in this area. Why is it important to do field building around impact investing?
Margret: There’s two reasons. One is that it’s really difficult to find fund managers just in the alternative private market space in general. Anything in the public markets is publicly searchable. You just go to Yahoo Finance or Google Finance and you can find anything you need. There’s just not as much transparency in the private markets.
And in particular, fund managers of color and female fund managers currently get such a small percentage of the funding. They don’t have the networks that their counterparts have. And so, really shining a light on some of those fund managers and solopreneurs is super important to building the field and making sure that everybody has the opportunity for access.
Denver: Is the field getting better at measuring social impact? And how do you guys screen for impact?
Margret: We think of those as different things. We do have an effort underway to revise how we are measuring impact. Your impact metrics are only as good as their inputs, and that’s the part that’s hard. We have about 650 different positions in companies and funds that we have to track down. Not everybody does impact reporting, and not everybody does it in the same way. So, it’s a monumental effort for us.
We’re shifting from measuring intended impact to measuring outcomes, which is an even bigger challenge or even further up the curve in that area than we were, but we still are working with all of our portfolio investments to move that along.
And then in terms of screening, we are looking at multiple levers. We are looking at impact. We’re looking at the time in order to achieve that impact. We’re looking at the trade-offs that might be, the cost of that impact in terms of fees, or time elapsed, or use of capital. So, it’s a very different equation for us on the way in.
And then we’re having to align that with multiple different strategies. We run a number of strategies internally that our clients invest in, but we also work with our clients individually on their own bespoke strategies. And so, every time we turn around, we’re dealing with a different set of parameters. So, investment selection is an ever-evolving, always changing and fun, complicated process for us.
Denver: What do you think the role of the blockchain is going to be in that? Because I’ve talked to a lot of people lately who are really looking at the blockchain as a way to measure that impact, to track those donations, to have it on a ledger, to have it trusted and transparent all the way around. It’s happening probably much more in the international aid community than anywhere else. But I didn’t know what you thought in terms of what the future of that looks like and as to whether it was anytime near.
Margret: I think it’s too soon to tell. I think blockchain’s real value add is in security and privacy, but it may also be used for transparency and the shepherding of information as well.
But with any sort of technology, critical mass is really the make or break for that. And I think it’s just too soon to tell whether blockchain will get us there or not.
Denver: We see in philanthropy, Margret, or at least we’re starting, to try to change the power dynamics in grantmaking. And that’s ceding more power to community, and even in some cases, turning complete decision-making over to them in this effort to have a more equitable society. Is the same thing happening in the impact investing space in terms of changing those power dynamics?
Margret: Absolutely. We work with a number of clients, and we run some strategies that are led by the communities that we’re trying to invest in.
We have a number of examples of some strategies where we want the fund manager or the community bank manager – ideally, those organizations are led by the communities that they’re investing in. Other cases, the actual strategy is guided by a group of people from those communities. And we do all of the above, and we’re seeing that taking hold more and more in impact investing. It’s terrific to see.
Denver: It sure is! One of the things you’re best known for is the ImpactAssets 50. And I think you’re probably in about your 10th year now. Tell listeners about it.
Margret: Well, the IA 50 was designed to address the issue that we just talked about in terms of transparency and access to impact investment fund managers.
And the IA 50 is meant to be sort of a representative sampling of impact investing funds. We have an external committee of luminaries from across the impact investing space who come together once a year to look at our hundreds and hundreds of applicants and choose just 50 to be the representative sample each year.
And we have a couple of lists that have shot out from the IA 50. So, we have an Emeritus list, which was generated when we realized—gosh—we’ve been in existence for 10 years. And there’s some fund managers who’ve been on this platform and leaders in this space for 10 years. And we can give them this great status as Emeritus and make room for some more up-and-coming fund managers to take a spot on that 50.
And then we also have an Emerging Managers list. And this is really our attempt to shine the light, give transparency and give opportunity to first-time fund managers who most often are fund managers of color or female fund managers. And it really does take– you have to have some amount of track record before you’re qualified in the eyes of some investors. And this is the opportunity for folks to really know who’s up and coming, and who are the ones to watch.
We really leaned into the role that we were built to play in a crisis like that, and it’s really forever changed the trajectory of our organization. We’re taking that same approach to racial equity and to climate change and to gender equity.
Denver: I don’t know this for sure, but I suspect you’ve had to make more decisions in the last 16- or 18 months than probably all your predecessors had to make altogether since this thing started in 2010.
What would you say was your most difficult decision, and how do you go about trying to make really tough decisions?
Margret: Well, I can say without a doubt, in my whole career, the most difficult decision was the one we faced during the pandemic. And it was the confluence of all the things that were happening at the time.
So, right after the first shutdown and when schools were closing, over a third of our team was at home with small children with no childcare and trying to hold down a full-time job. At the same time, our clients are giving money away and making investments to address the pandemic. And we were seeing 400% increased volumes.
So, we’re under capacity, over four times the volume, and we really felt like we needed to invest in coming up with a point of view, and help everybody move their money to all the right places; yet we’re watching the market tank and therefore our revenue tank. And we have a really tough decision to make.
And any conservative organization would have clamped down on expenses to meet revenue, slowed down the grantmaking time, slowed down the investing time. And we made the opposite recommendation to our board. And we made the recommendation that we invest in hiring on contractors to help us expand our capacity so we could meet the volume for granting and impact investing. And we invested also in taking on Stop the Spread and in forming our strategy and our point of view on how to address the pandemic.
We really leaned into the role that we were built to play in a crisis like that, and it’s really forever changed the trajectory of our organization. We’re taking that same approach to racial equity and to climate change and to gender equity. And really, the silver lining of it all, is it set us on a completely different course than the one that we were on.
Denver: Has it changed the trajectory of you as a leader? Do you think that there are going to be some lessons that you’ve learned that will inform your leadership going forward? And if so, what would a couple of those be?
Margret: Absolutely. I think I’ve always been just as concerned or focused on the human side of leadership as I have been on results. And I really do mean both. I’m really energized by producing results in my own work.
But I, again, enjoy the intellectual challenge of figuring out how do you serve two masters, which so many people have sort of pitted against each other as mutually exclusive? And the pandemic really required us to not just– we weren’t just challenged on, in more ways, on making those two things work.
But we also were much more explicit about how we’re going to address the human side of things. And it was important for us to just state – “We’re going to support you whether you can work an eight hour a day right now or not. And we don’t want you to take the shoulder, the stress of everything that’s happening right now, and holding down a job and feeling guilty about not being able to do everything when you’re used to doing it.” And really just working with people and being very flexible.
And I think everybody’s kind of, to some degree, looking at a new normal in terms of how they think about workforce. And for us, we were always pretty flexible but still very focused on results. And I think now, we’re just putting a much clearer articulation around what that looks like and really leading with the human side of it.
Denver: And I think that’s exactly right. Because you can say they’re both, in some ways, equal in terms of their importance, but people don’t realize that the human has to come first. And if you do the human first, the other can follow. But if you try to reverse that order or do it even at the same time, it’s never, never going to work.
I’ve always felt that if the people who work there and who work for you think or know that you care more about them than they care about themselves, the dividends from that are just unbelievable, both in terms of just being a human being, but also for the firm as well.
Margret: Yes! And if you’re going to be completely capitalistic about it, you still would invest in the human side first because the turnover is lower, the productivity is greater. People are more energized and committed to their work because of that. And so, there’s economic proof for making those decisions, too.
Denver: It’s a no brainer in so many ways.
Finally, Margaret, you’re in the middle of all this. So, how do you believe this extraordinary confluence of events over the past year, year-and-a-half, is going to shape impact investing over the next 5 to 10 years?
Margret: I think it’s given us more focus. And impact investing was already popping through that inflection point where we were noticing we were having less conversations about what it is or why you should do it, and people were coming to us and just wanting to get started. So, less on the education and the convincing, and more on just getting to work. And the volume seems to be much greater.
And now, with the climate crisis and the equity crisis, it seems that there’s much more focus now, which means there’s going to be economies of scale. And I think we’ll actually see some really meaningful impact coming in the years because of that.
Denver: Fantastic. Tell us about the ImpactAssets website and some of the information that visitors will find there.
Margret: Great! Well, our website is www.impactassets.org. We have all kinds of information on how to do impact investing, how to do that in the donor-advised fund. We have information on our products and services, and generally just how to get started.
And there’s a bunch of issue briefs that talk about how to do impact investing. It’s just a wealth of information. As a nonprofit impact investing firm, we care just as much about educating and building the field as we do about actually moving money. And that we’ve invested quite a bit in making sure all of that is available publicly.
Denver: And you have a nice synthesis of a lot of things all coming together that makes you quite distinct.
I want to thank you, Margaret, for being here today. It was such a pleasure to have you on the show!
Margret: My pleasure. Thank you so much for having me.
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