This blog post has been written by the Ti Group, Access’s learning partner. It is based on interviews with 12 witnesses who were or are directly involved in the process as well as a review of all of the internal documentation as well as what is public. Where an opinion is expressed, this is the Ti Group’s interpretation of these sources unless otherwise stated. The TI Group would like to thank all of those who gave up their time for interviews and provided full access to documents.

Previously in the story of Total Impact… we looked at the financial stress of demand for the endowment money rising and returns on investments reducing. Adding an impact lens is essential to the financial story: reduced returns have a cost to programmes; also the money released from investments potentially moves impact from the endowment to the impact Access is making through its programmes.

Access has gained a great deal of experience by 2019, but it’s not finished asking questions about how to shape its money to serve its mission and mandate, or how this might be useful to other organisations. As one interviewee put it, “How do we learn from what we are doing? And how do you share it?” It has some reflections on its Total Impact journey so far, and plenty more questions for the future.

Delegating not abdicating

Codifying the idea of Total Impact into an investment policy statement was, literally, a defining moment.

For Access, it is an enhancement, not a replacement, for engaged management of its endowment. It’s why the statement is full of opportunities for reporting and discussion between Rathbones and Access. This has the effect of moving the knowledge of impact and investment across the boundaries between client and asset manager. The willingness of Rathbones to share and the precision of questions from Access means the relationship serves to improve everyone’s dexterity with impact and investment. It’s a relational model at least as much as a transactional one and it means that constant adjustments can be made between risks, returns, cash demands from Access’s programmes, impact, and other vital moving parts.

The legacy of the debates that created the investment policy statement is something that could be helpful to other foundations when they’re thinking about impact as well as financial returns.

As well as what is written down, Access has learned a lot about how to work with Rathbones, and vice versa. This includes a place for challenge. Perhaps the best example of this was when Rathbones sought to reclassify the investment portfolio as high risk. One interviewee said that you need to “Trust your instincts, [and] have confidence to push back.” Further conversations revealed that this move had originated with risk and compliance, rather than the team Access dealt with. Pushing back “from a position of mutual respect” founded in knowledge of the market enabled the Rathbones team working with Access to make the case to their colleagues, and return to the risk classification to medium rather than high. This underscores the importance of the capabilities of the team involved. As the interviewee said, “We need professionals who have got experience and get impact, so they know the experiences of fund managers and their internal struggles.”

Market Movements

One of the interviewees used a dancefloor analogy for the market of fund managers and the products they offer, where “the first on the floor might attract others and, later, make the DJ change the song”. The existence of Access’s Total Impact strategy seems to have helped stimulate a little of the asset management market, too. As several interviewees observed, there is little room for R&D in the asset management world unless it can be justified by clients asking (and paying) for it. In contrast, “The investment management industry can be very creative when it sees a wall of demand.” The persuasive nature of investing in impact at Access’s scale has helped support asset managers to make a better internal case for this kind of work. “We need new players” was, however, the call of one interviewee, so that there is more choice of managers for asset owners and less risk that a few players change course and Access and other like-minded foundations are left with little choice.

Of course, asset managers also need products that match this emerging demand. The availability of investments that suit the design of Total Impact is a persistent challenge in investing Access’s endowment. Charities are not issuing quite as many bonds as anticipated but the market has changed significantly since 2015, when Access started. At that point, Big Society Capital helped create a fund to provide the last third of the finance for charity bonds, because the market was still fragile and charities didn’t have much of a track record. Things are somewhat different now and, if Access wasn’t spending its endowment by 2025, it would have more choice. Nonetheless, “There is a shortage of product. We can’t fix this on our own. It’s not surprising: Access was created because there is not enough of a pipeline,” according to one interviewee. A foundation with a permanent endowment would find more options now and have more choice of selling assets to another buyer on the secondary market (something else that creates some friction for a spend-down investor like Access).

There are also balances to be struck around due diligence: who does it; at what cost to whom; and what’s the trade-off with the size of the deal. For example, an asset manager will typically want to take a big enough slice of a charity bond to justify the due diligence costs, which means either a small chunk of a big deal, or a bigger slice of a smaller deal. But, as one interviewee pointed out “Nine times out of ten genuine impact businesses are smaller.” All of this has implications for the number and mix of other investors, the risk and the management costs; all of which have to be negotiated at the same time as the intensity of the impact. Understanding the incentives and the constraints that asset managers are working with is important to get the best outcomes from Total Impact.

Potential for Legacy?

The attitudes to social impact investing have moved somewhat in the world of trusts and foundations in recent years. In 2010, only 23% of members surveyed by the Association of Charitable Foundations (ACF) intended to have an ethical investment policy; by 2015 it was 59% and now, in 2019, they have their own intentional investing group (of which Access is a member).

Could these changing attitudes mean that the experiment with the bullseye model becomes of wider interest? A few interviewees expressed some concerns about the subjectivity and flexibility of the bullseye either being a barrier to adoption or risking dumbing it down. On the other hand, one pointed out that, “All asset owners could adopt it as a framework… Everyone is moving towards integrating ESG. [They are] already within the outer ring of the framework. What you need is an intention to move past that.” Other foundations and trusts could apply Total Impact in line with their own values and priorities, staking-out their own intentions for impact and choosing which investments fit in which layer. “It’s totally dependent on your objectives as a charity where you sit in those concentric circles and whether there is a market available to you across the spectrum,” observed one. Nonetheless, whilst the mix of investments might look very different to Access’s choices, the idea of integrating the operations and investment activity of a foundation to generate more impact in total is the essence of the model.

These legacy signs are encouraging Access to think about what that future might look like.

Coming up next time…

Imagining the future of Total Impact and life after Access