Rifan Muazin
For over two decades, the prevailing argument for impact investing among foundations and family offices has hinged on a seemingly irrefutable premise: if you possess both deeply held values and significant assets, shouldn’t those assets actively reflect and advance your core beliefs? This "alignment" argument has been a powerful catalyst, driving substantial progress in channeling capital towards social and environmental good. However, for many mission-driven institutions, this approach has inadvertently perpetuated a long-standing model that segregates their investment portfolios from their operational mission. The time has come to move beyond mere alignment and embrace a more ambitious paradigm: to ask, with unwavering seriousness, "Are we playing to win?"
This shift in perspective demands a fundamental re-evaluation of how philanthropic capital can be deployed. Instead of viewing investments as a separate, albeit value-aligned, activity, this new framework positions investing as an integral component of fulfilling an institution’s mandate. It requires a deep dive into the specific problems an organization exists to solve and a strategic assessment of what it will truly take – in terms of scale, innovation, and capital – to achieve lasting solutions.
The Mandate for True Impact: Embracing the "Play to Win" Mentality
Every foundation is established with a specific mandate, and many family offices imbue their wealth with a profound mission. These missions can range from alleviating poverty in specific regions and expanding educational opportunities to safeguarding vital watersheds or revitalizing struggling hometowns. The core of "playing to win" lies in asking what it would truly take to comprehensively solve the problem your institution is dedicated to addressing.
Engaging with this question in earnest often leads institutions down unexpected paths. If the solution to a pressing social or environmental challenge necessitates the growth of businesses, or the infusion of private capital at a scale far exceeding the capacity of traditional grant budgets, then investing transforms from a mere expression of values into an essential operational tool. This is not about charity in the traditional sense; it is about leveraging financial power strategically to achieve tangible, transformative outcomes.
Historical Precedents: Institutions That Followed Their Mandates to Surprising Places
The annals of American history are replete with examples of institutions that, by rigorously pursuing their mandates, discovered the indispensable role of strategic investing. While their actions may have appeared radical at the time, in hindsight, they often seem like inevitable and logical progressions. These case studies offer invaluable lessons for contemporary philanthropic leaders seeking to move beyond incremental progress.
The Blandin Foundation: Sustaining a Town Through Strategic Lending
In 1941, Charles Blandin, the visionary owner of the Blandin Paper Company, established the Blandin Foundation with a clear directive: to preserve the natural beauty and economic vitality of Grand Rapids, Minnesota, and its surrounding communities. For decades, the paper mill served as the bedrock of this economic prosperity. However, as the mill began to shed jobs in the 1980s, the Foundation’s trustees confronted a stark reality: grant programs alone could not adequately compensate for the loss of employment. Displaced workers needed sustainable pathways to new livelihoods, and the most promising avenue lay in fostering the growth of local small businesses. Yet, these enterprises often struggled to secure loans from rural banks, which typically viewed such ventures as too risky.
In response to this critical need, the Blandin Foundation took a bold step in 1987, transforming itself into a direct lender. This strategic pivot allowed the Foundation to provide much-needed capital to local entrepreneurs, thereby bolstering the regional economy and creating new employment opportunities. Today, the Blandin Foundation continues to actively invest, often in collaboration with local economic development authorities, demonstrating a long-term commitment to the economic well-being of its community. This evolution from a traditional grant-making model to a proactive investment strategy underscores the power of adapting financial tools to meet evolving community needs.
Prudential: Investing in Urban Renewal Long Before the Term "Impact Investing"
The tumultuous events of the 1967 uprising in Newark, New Jersey, presented Prudential Insurance Company with a critical decision: to remain in its founding city or to relocate. Prudential chose to stay. However, remaining in a city grappling with significant social and economic challenges necessitated more than just a symbolic presence. True urban recovery depended on fostering development and business growth, particularly in areas that mainstream lenders often deemed too risky.
Recognizing this imperative, Prudential began to invest in Newark’s community developers and affordable housing projects long before the term "impact investing" entered the lexicon. These investments were not merely acts of corporate philanthropy; they were strategic interventions designed to catalyze the city’s revival. In recent decades, Prudential’s commitment has manifested in significant projects, including the restoration of a long-dormant downtown department store and the ambitious five-block Teachers Village development, which integrates housing, retail, and educational facilities. Prudential’s enduring presence and proactive investment in Newark serve as a powerful testament to how deeply embedded institutions can leverage their capital to drive urban revitalization and create sustainable communities.
Lumina Foundation: From Grants to Venture Capital to Scale Educational Attainment
In 2009, the Indiana-based Lumina Foundation set an ambitious and publicly measurable goal: to increase the proportion of American adults holding a quality post-secondary credential from approximately 38% to 60% by the year 2025. The Foundation diligently published its progress annually, monitoring the movement of these critical numbers. While progress was made, it was not occurring at the pace required to meet the ambitious target. Lumina’s leadership recognized that grants to existing non-profits, while valuable, were insufficient to bridge the widening gap.
The realization dawned that newer, more affordable, and faster educational approaches, specifically designed for working adults, needed to scale rapidly. Achieving this scale, however, required venture capital that mainstream funds were not readily providing. Consequently, Lumina strategically expanded its operational toolkit. While continuing its vital grantmaking activities, the Foundation launched its own venture investing arm, actively backing companies poised to revolutionize educational access and delivery. One such investment was in Edquity, now Beam, a platform that empowers over 100 colleges and agencies to efficiently distribute emergency aid to students, thereby reducing financial barriers to educational attainment. Lumina’s journey exemplifies how a data-driven approach and a willingness to embrace innovative financial instruments can accelerate progress towards ambitious educational goals.
The Roosevelt Administration: Reviving a Nation Through Housing Finance
In the early 1930s, the United States faced an unprecedented unemployment crisis, with a critical need to re-employ workers in the building trades. This objective was inextricably linked to reviving the housing market, which in turn required a fundamental transformation of private mortgage lending practices. At the time, a typical mortgage demanded a substantial 50% down payment and a repayment period of only five years, making homeownership an unattainable dream for the vast majority of Americans.
Following his inauguration in 1933, President Franklin D. Roosevelt’s administration embarked on a transformative initiative in collaboration with the banking sector. The creation of the Federal Housing Administration (FHA) in 1934 was a watershed moment, introducing insured, long-term, fixed-rate, fully amortizing mortgages. This innovation dramatically reduced the financial burden on homebuyers and stimulated demand for new construction. Further solidifying this revitalization, Fannie Mae was established in 1938 to build a secondary market for these mortgages, providing liquidity to lenders and enabling continued home financing. This robust intervention laid the groundwork for a housing stock now valued at over $50 trillion and facilitated homeownership for more than 60% of Americans, allowing them to build intergenerational wealth. It is crucial to acknowledge, however, that this progress was marred by decades of discriminatory practices that shamefully excluded Black families from these life-changing benefits, a historical injustice that continues to resonate. The Roosevelt administration’s actions, though driven by a mandate to address national unemployment, ultimately reshaped the financial landscape and demonstrated the profound impact of government-backed investment in a critical sector.
These historical examples are not simply anecdotes; they are powerful illustrations of how a deep commitment to mission, coupled with a strategic understanding of financial tools, can lead to profound societal impact. None of these leaders set out to make a philosophical statement about capital and values. Their primary objective was to keep a town thriving, a hometown standing, students graduating, and builders employed. Investing, in its various forms, was the most effective means to achieve these vital ends.
When Does Winning Demand Investment? Three Crucial Questions
Not all philanthropic missions necessitate a direct investment strategy. Some objectives can be effectively achieved through traditional grantmaking, policy advocacy, or a combination of both. However, three probing questions can help determine when "playing to win" inherently requires a more active engagement with investing:
- Is the scale of the problem so large that grants alone will never be sufficient to solve it? If the challenge you aim to address is systemic and deeply entrenched, relying solely on philanthropic grants may be akin to trying to empty an ocean with a teaspoon. True transformation often requires capital at a scale that only market-based solutions can provide.
- Are the most promising solutions dependent on the growth of businesses or the development of innovative financial products that traditional funders are unlikely to support? Many groundbreaking solutions, particularly in areas like clean energy, sustainable agriculture, or disruptive educational technologies, require the patient, risk-tolerant capital that impact investors are uniquely positioned to provide. Mainstream commercial capital often shies away from the upfront risks associated with these ventures.
- Can your organization’s unique assets – its patient capital, its long-term perspective, its expertise, or its network – be leveraged to attract and deploy other forms of capital to achieve the mission? Foundations and family offices often possess advantages over traditional commercial investors, such as the ability to absorb greater risk, operate with a longer time horizon, and structure investments in ways that are precisely tailored to the problem at hand. This allows them to act as crucial catalysts, de-risking opportunities and attracting larger pools of capital.
If the answers to these questions are a resounding "yes, yes, and yes," and if your institution is genuinely committed to achieving significant, lasting change, then investing transitions from an optional strategy to an absolute necessity. Importantly, the legal and regulatory frameworks already permit this evolution. Foundations have been empowered to make program-related investments (PRIs) since the Tax Reform Act of 1969, and subsequent IRS guidance in 2015 clarified that they can indeed consider their mission when making other types of investments.
The Transformative Shift: What Changes When You Truly "Play to Win"
Embracing the necessity of investing is a critical first step, but the true transformation lies in how this approach reshapes an institution’s operational philosophy and investment practices. The examples cited above illuminate three fundamental shifts that occur when an organization commits to "playing to win":
Prioritizing Impact Over Volume: Measuring What Truly Matters
The philanthropic sector often measures success by the sheer volume of money deployed. However, when "playing to win," the focus shifts dramatically to the tangible impact generated. Prudential, for instance, didn’t require a massive investment portfolio for its own sake; its objective was a thriving city that could serve as its headquarters. In this context, dollars are merely an input, a tool to achieve a desired outcome. The true metric of success becomes the measurable improvement in the lives of people and the health of the planet. This necessitates a rigorous focus on defining clear impact goals, developing robust measurement frameworks, and consistently evaluating progress against those objectives, rather than simply reporting on the size of the endowment or the number of grants disbursed.
Setting Accountable Goals: The Power of Public Commitment
Lumina Foundation’s public, measurable target for post-secondary credential attainment served as a powerful accountability mechanism. The consistent reporting of progress against this national data point created an undeniable imperative for the Foundation to adapt its strategies when they proved insufficient. Without such clearly defined and publicly accessible goals, it becomes far too easy to fall back on the comfortable, yet ultimately insufficient, rationale of "we supported great work." "Playing to win" demands a commitment to ambitious, outcome-oriented goals that hold institutions accountable for achieving significant, demonstrable change, pushing beyond incremental progress to drive systemic solutions.
Engaging Policymakers as Partners: Shaping Markets for Greater Scale
The realization that individual investments, however substantial, are often insufficient to address complex societal challenges leads to another critical shift: the active engagement with policymakers. To achieve true scale, it is imperative to shape capital markets in ways that attract and leverage far larger pools of private capital. Historically, government has been the most potent market shaper, as exemplified by the transformation of the housing market. However, the approach to engaging policymakers must evolve. Instead of framing the conversation as a plea for assistance in moving more philanthropic capital, the question should be: "How can we collaborate to harness private capital for the urgent problems we both are committed to solving?" This partnership-oriented approach recognizes that systemic challenges require systemic solutions, and that the synergy between public policy and private investment is essential for achieving transformative outcomes.
"We Did Our Best" is Not Enough: The Imperative to Win
Foundations and family offices are afforded a remarkable degree of freedom. They can afford to be patient, to take risks that conventional investors would shun, and to structure loans, guarantees, and investments on terms that prioritize the problem’s solution over quarterly returns. This inherent freedom, however, carries with it a profound responsibility.
To fall back on the justification, "We did the best we could with the tools we had," when a grants-only strategy falls short of achieving a critical mission, is increasingly difficult to defend. This is not a critique of the talented individuals who currently manage endowments and grant programs; they are operating within the parameters of the existing system. "Playing to win" necessitates their evolution, fostering collaboration between investment teams who recognize the mission as integral to their role and program teams who view capital as a vital tool in their arsenal.
Ultimately, if an institution is dedicated to serving a mission, it possesses an extraordinary opportunity to leverage its investment capital not just to align with its values, but to actively shape markets. This strategic deployment of capital is the key to ensuring that the institution, and more importantly, the people and causes it serves, can truly "win" in addressing the most pressing challenges of our time. The future of impact investing lies in this fundamental shift from alignment to active, strategic, and winning engagement.
Reynand Wu
Raul Delapena Setiawan
