Charitable foundations look towards impact investing
Wednesday, January 2, 2013
Pierre Omidyar wanted to take the fortune he earned from his company, eBay, and become a philanthropist. So he started a traditional foundation for giving out grants. He called it the Omidyar Family Foundation. Soon after, the entrepreneur decided giving away money wasn’t the best bang for his buck. There were companies creating jobs and developing social innovations he wanted to support. And grants could deplete his foundation’s endowment. So Omidyar switched his philanthropy organization to a hybrid structure, part grantmaker, part investment bank and called it the Omidyar Network. (From OFF to ON … get it?)
Matt Bannick runs ON day to day. “I don’t think there’s inherently anything wrong with the foundation,” he said. “I think what we’re arguing, what we’re doing is expanding beyond the typical grantmaking approach to having positive social impact.”
The Omidyar Network is on the leading edge of a trend in philanthropy: To merge the practices of an investment bank with the goals of a traditional philanthropy.
Private foundations have always been legally allowed to invest their considerable endowments in social causes. It’s just that most of them chose not to, preferring to separate the Wall Street side of the organization that handles bank accounts from the Skid Row side that handles charitable giving. That’s done in the form of grants, usually around five percent of assets each year because that’s what the IRS requires. The Wall Street side earned money, the grants side gave it away.