Comment on: “Capital for Justice: Spurring On Impact Investing for Racial Equity”, by Darren Walker and Roy Swan

Twenty-five years ago, having spent over a decade in venture capital investing, I co-founded an investment management firm, Fairview Capital Partners, to invest institutional capital into venture capital, growth equity and other private equity funds significantly owned and/or led by women and minority professionals. At some point in my career progression, it dawned on me that the eponymous “capital markets” are – in fact – “people”: thousands of people working in investment offices of public and corporate pension funds, sovereign wealth funds, banks, insurance companies, government-owned entities, foundations, endowments and wealthy family offices, making decisions about their institution’s financial capital.

 

Some of these people were, and remain, reluctant to commit investment capital to more diverse investment managers and entrepreneurs, whether constrained by incumbency bias— a tendency to back candidates one is already familiar with— a lack of critical market intelligence, or simply believing that doing so will likely yield sub-optimal results, despite a growing body of compelling data to the contrary. Taken cumulatively, the effects of decisions made across the institutional investor corpus have skewed the allocation of investment capital towards a relatively homogeneous segment of the available qualified, talented investment professionals capable of investing such capital responsibly. This has considerable consequences for excluded communities.

 

Until recently, the weight of efforts to alter such lingering, distortive inequities has fallen largely to public pension funds, whose governing bodies increasingly reflect broader diversity than those of many private institutions. Foundations, for all of their tremendous work to advance racial justice and equality in the United States, have been noticeably absent among the ranks of institutions investing with diverse managers. Indeed, a recent study found that only 1% of capital provided to under-represented venture capital and private equity fund managers came from foundations. (See: “Limited Partner Perspective: The Opportunity in Diverse Emerging Managers”, NAIC, 2015).)

 

Fortunately, as Roy Swan and Darren Walker inform us in this compelling article, the Ford Foundation and a few of its peer institutions are determined to change this. And as the authors make abundantly clear, in order to accomplish this, such institutions must act, must be willing to experiment, to take risks, indeed – must “do something.”

 

That “something” began with Ford leadership’s embrace of a kinetic new idea: that increasing the number of diverse professionals, in particular women and under-represented minorities, who have demonstrated the talent and ability to profitably invest institutional capital in the private markets – venture capital, growth equity – will in time significantly impact the distribution of wealth across a broader swath of the American people. In sum, committing capital to a diverse pool of investment professionals is impact investing. Ford then doubled-down by committing an appreciable portion of its own endowment to this thesis over the next decade.