Essays on People, Place & Purpose

Investing in What Works for America's Communities

The World Has Changed and So Must We

by Clara Miller

We see no reason to target investment to a particular industry, subsector, or tax status, although not every financial investment tool is relevant to every organization. For example, it is highly unlikely we will make a program-related investment (PRI)4 to a public company or buy tradable stock of a nonprofit without significant regulatory changes, and we don’t think we need such changes to have a full spectrum of tools or opportunities.

Our enterprise framework will continue to be the private foundation, and we assume we will exist as long as we can add value to society. We also assume that there will be investment opportunities in the full spectrum of enterprises, regardless of industry or sector, and that those we pursue can help produce vitality, job growth, and economic activity fully inclusive of low-income people.

We expect that although our portfolio has for years emphasized opportunities for low- and moderate-income people to invest in real estate and own homes, this emphasis will change as time passes, and we will seek a more tactical balance. In much of the community development world, lenders’ business exigencies—the need to secure transactions through leveraged real estate coupled with the interaction of transaction size, tenure, and profitability, and the resulting industry-wide focus on dedicated streams of federal subsidy—have driven antipoverty investment and strategy to become overly narrow. As bankers and developers, community development organizations have tended to overinvest in real estate assets and underinvest in other assets such as enterprise innovation, technology, and human capital. We are looking for ways to diversify.

Diversification in our portfolio is likely to emphasize investment that improves lower-income people’s access to reliable income and opportunity. From our point of view, owning fixed assets is important to an individual’s longer term prosperity only insofar as jobs and income are steady and reliable, and cash is obtainable. Noncash assets such as real estate, securities, and even education derive their financial value largely from the income they attract and embody. When borrowers acquire these assets with debt, revenue reliability is even more important to protect acquirers from risk. Our strategy puts reliable income and cash first, and illiquid assets, especially those acquired with debt, second.

For the F. B. Heron Foundation, all financial investing is a direct means to enact strategy, so our fundamental question for deployment of all capital will be, “what is the highest and best use of this asset for furthering our mission?” Financial returns to our own portfolio will be a necessary part of answering that question, but so will returns to society, to the organizations in which we invest, and to the fields of social endeavor on which we focus. We include grants among the investments we think of in this way, and we will deploy them as a primarily financial tool. The protective “equity holders’ ethic,” so central to successful commerce, is relevant to other investment tools, including grants.


We harbor no illusion of being a unique, prophetic voice in American philanthropic or financial markets. In fact, success requires a chorus rather than a soloist. It is an unavoidable reality that with assets of roughly a quarter billion dollars as of 2011, the F. B. Heron Foundation is not in a position, purely on its own, to make much of an aggregate difference in the way investors, enterprises, and labor markets function. Neither, for that matter, is any other single philanthropic actor, even much larger ones. Ultimately, we will succeed by influencing the attitudes and behavior of many other investors, perhaps beginning with philanthropy but extending well beyond. Forming networks of thought, communication, and action with other investors will become a central priority.

Some of what we are attempting may not work. We have much to learn about the possibilities of success, failure, reinvention, co-investment, and “the foundation as enterprise” with this approach. Yet, we are determined to contribute, by advocacy, by example, and, just as powerfully, by joining our colleagues in their efforts, to the development of an increasingly expansive, dynamic, and effective philanthropic response to poverty. The pathway out of poverty for many Americans in the twenty-first century requires economic reinvention, not only marginal access to assets and service. The work of philanthropic organizations can be a full-spectrum contributor to that end, both through enterprise reinvention and by guiding the full deployment of capital in the mainstream to promote a more inclusive, just, and productive society.


  1. This article is based on the writing of several contributors and excerpts from F. B. Heron’s Strategy Document. Miller was a contributing writer and served as editor of this piece. Other contributors, reviewers, and editors included the Foundation’s board of directors; staff members Kate Starr, Dana Pancrazi, John Weiler, and Jim Metzinger; and consultant Tony Proscio.
  2. Sabrina Tavernise, “Poverty Rate Soars to Highest Level Since 1993,” New York Times, September 14, 2011, page A1.
  3. “It took roughly 6 months for employment to recover to its prerecession level after each postwar recession throughout the 1980s, but it took 15 months after the 1990–91 recession and 39 months after the 2001 recession. At the recent pace of job creation it will take more than 60 months after GDP reached its prerecession level in December 2010 for employment to recover” (James Manyika et al., Executive Summary, An Economy that Works: Job Creation and America’s Future, McKinsey Global Institute, June 2011).
  4. “Program-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes.” The Foundation Center, Grantspace, available at

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Investing in What Works for America’s Communities is a joint project of the Federal Reserve Bank of San Francisco and the Low Income Investment Fund.

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