Heron started as a traditional foundation. Most traditional foundations are created when a person, family, group, and/or organization sets aside a sum of money for charitable purposes. The money is used to establish an endowment that funds philanthropic activity over time.
The endowment is typically invested with the help of professional investment advisors and managers who try to maximize its financial return. Each year, at least 5% of the endowment (according to current IRS rules) gets allocated for charitable activity (including qualifying expenses and grants).
The problem, however, is that this model essentially turns the foundation into an investment management shop with a relatively small charitable-giving program welded onto it.
The investment management shop invests 95% of the assets in companies to maximize profit without worrying about the social impact of those companies. And the giving program gifts 5% of the assets to nonprofits without worrying about the financial sustainability of those nonprofits. In some cases, the investment management shop ends up investing in companies whose activity actually undermines the foundation’s core mission.
Creating More Cohesive Operations
Over the years, our team and board became increasingly convinced that philanthropy should be more than just traditional investing with a grantmaking arm attached. We began using more and more of our endowment assets in positions where we thought we would have mission benefits. We also discovered that some of the investments in our endowment were unfortunately exacerbating the problems that our grants were trying to solve. We therefore committed to reviewing and deploying all of our assets — not just our grants — to support our mission.
Since then, we have broken down the barrier between “investing” and “grantmaking” that defines most traditional foundations. In its place, we are trying to build an operating model that helps ensure that every dollar, staff member, and resource at our disposal is dedicated to helping people help themselves out of poverty. Our efforts are designed to create a single enterprise that works coherently to achieve our mission.