Investments

There is a growing and lively debate today about whether and how private foundations should align their investment practices with their programmatic missions. This debate is good for philanthropy.

As a private charitable foundation, MacArthur’s paramount responsibility is to make the most effective use of our resources for the public good. That responsibility challenges us to periodically revisit our mission, to consider whether our objectives and our approaches are sufficiently bold and effective, and to ensure that we are tackling some of the world’s most profound issues.

Like many large foundations, MacArthur’s investment portfolio has long been managed to achieve strong risk-adjusted returns that fund our operations and charitable activities over the long-term. We are fortunate to have a talented investment Staff that identifies and selects top-performing investment managers. These outside managers, in turn, deploy the Foundation’s capital across diverse asset classes in pooled funds with many other investors, and the managers subsequently choose the investments.

In addition, we have a separate, professional in-house team that directly manages a sizeable, dedicated portfolio of impact investments. The primary purpose of this portfolio is to achieve program impact, and it has been an integral, successful aspect of our work for more than 30 years. Recognizing the rising interest in the topic of foundation investment practices, and in line with our commitment to transparency, we believe it is important to share a description of our investment approach.

In keeping with the Board’s commitment to periodically review our approach, the Board constituted an ad hoc committee to examine how the Foundation might further align our investment portfolio with our mission and charitable programs.

The committee explored various options, examined closely its fiduciary duties and applicable law, had discussions with a variety of investment professionals, and commissioned a landscape analysis by Cambridge Associates. As a result, the Board approved the Foundation taking a series of steps:

• We ceased investing in private energy funds that invest in oil and gas exploration in 2019. We will allow existing funds to wind down while exploring potential sale of our interests for a fair price.
• We are changing the way we obtain equity exposure through our derivative program which historically used derivatives based on broad indices. Starting in the U.S. we will use an index that excludes companies with fossil fuel reserves. As these indices become practical to use globally, we will use these for our global equity exposure as well.
• We have taken several steps to increase the number of diverse managers we retain and the amount of assets under their management.
• We will continue to explore other ways in which we can further align our investment assets with our mission, values, and programs.

About Our Approach

MacArthur is a mission-driven charitable organization with the overarching goal of bettering the world through our philanthropic activities. The Foundation was privately funded from a bequest from John and Catherine MacArthur, which allows us to operate independently from government or the commercial sector, although sometimes in collaboration with both.

The Board has the fiduciary responsibility and authority to allocate the Foundation’s assets to best achieve our philanthropic objectives and ensure our assets are managed prudently in accordance with applicable legal requirements.

To maximize our philanthropic impact, we have chosen to use two methods for the ongoing management of our financial assets. This document describes the Foundation’s model and guidelines for action in cases where there is conflict with our programs or there appears to be substantial evidence that an investment involves or facilitates morally abhorrent activity.

Two Methods to Achieve Maximum Impact

A substantial portion of the Foundation’s assets is maintained in an investment portfolio managed by a professional in-house Staff, largely through the selection and oversight of outside managers. The objective identified by the Board for this investment portfolio is to earn a financial return sufficient to support a substantial, stable level of grantmaking and related operating activity over the planning horizon, while investing with the highest standards of ethics and taking steps to further align the portfolio with our mission, values, and programs. We undertake substantial due diligence in our management selection process, including considering how a prospective manager approaches Environmental, Social, and Governance (ESG) issues in their practices and choice of investments and their commitment to diversity.

In addition, the Board has allocated $500 million of Foundation assets to an impact investments portfolio managed separately by other professional Staff. This portfolio is dedicated to the advancement of the Foundation’s programs and other philanthropic purposes, while also earning a financial return.

By using these two methods, we seek to fulfill our philanthropic mission over the long term. The Foundation can shift assets from the investment portfolio to the impact investment portfolio or choose to rely solely on one or the other as our priorities and programs evolve.

Potential for Conflict

It is possible that an investment made by a foundation may conflict with its program objectives, regardless of the way an investment portfolio is managed. The ability to preempt or resolve such conflicts will vary, however, depending on particular objectives and key practical constraints, such as investment mode, strategy, or portfolio size.

Currently, almost all of MacArthur’s investments in our portfolio are made via intermediary funds, rather than directly in individual companies through managed accounts. In many cases, therefore, it is not practical or possible for the Foundation to avoid making particular investments by requiring managers to use specific investment screens. In addition, exiting from intermediary funds can result in immediate investment losses to the Foundation and, as with imposing screens, also could limit access to high-performing managers in the future.

Nevertheless, there may be certain cases where financial investments, once made, will be judged by the Board to be sufficiently damaging to the Foundation’s mission that we should divest from the funds that made such investments. Or the Board may divest from future direct investments should the current approach to managing the portfolio change.

In that regard, the Foundation has determined that we will continue on a path to divesting from fossil fuels. Additionally, we will increase our exposure to funds that focus on companies that are assisting in the transition to a clean energy economy and addressing the climate crisis.

In addition, the Board may determine there are other investments where continued investment would thwart the programmatic objectives of the Foundation or be clearly contrary to the Foundation’s values.

With these exceptions, the Foundation will not divest from investments to assert policy preferences, censure, or political leverage. The circumstances under which the Board might determine that we should divest from certain investments, other than as provided above, are where a company or government, in which an investment is made, is engaged in (or provides systematic support to regimes that engage in) morally abhorrent activity such as genocide, apartheid, slavery, or systematic cruelty to humans in helpless situations (many activities that may cause social harm do not descend to the level of being morally abhorrent).

The Board may identify an investment for divestment, or the President of the Foundation may bring to the Board a case for divestment from any financial investment, where there is substantial evidence that the investment descends to the level of morally abhorrent activity. The case should clearly present the nature of the activity, together with the opinion of the Chief Investment Officer about the financial costs and practicality of divesting.

The Board will consider the case and make a determination consistent with this policy. The determination shall be binding until such time as the Board may decide otherwise.

In the event of such a determination by the Board that an investment should be divested, the Investment Department will present a plan to the Investment Committee specifying how that will be undertaken. Upon approval of the Investment Committee, the divestment plan will be implemented.