Events
Beyond grantmaking: defining an investment strategy to support inclusive and equitable quality education
This members-only Education Finance Network event, held on November 30, featured a discussion between Network members Michael Rieser from UBS Optimus Foundation and Alejandra Montes Saenz from Fundación Carulla. The speakers shared their experiences in developing impact investment strategies in education, and discussed how to leverage alternative financing instruments to fund innovative solutions that improve learning outcomes in low- and middle-income countries.
Key take-aways from the event:
- Impact investing can help foundations maximize their impact and increase the sustainability of their endowments and programs.
- Succeeding in impact investment requires strong leadership skills and internal capabilities to provide financial and operational support to social entrepreneurs.
- Impact investing is not the solution for all problems – grantmaking can still be an effective instrument, for instance to support early-stage social enterprises and to fund incubators.
The following is a summary of the discussion
Why should foundations consider impact investing?
Impact investing can help foundations operating in the education sector maximize their social impact by unlocking additional private capital, allowing them to scale their impact without reliance on expanded grant funding.
Impact investing can also play a key role in increasing the sustainability of a foundation’s endowment and its programs: if a problem can be solved by a market-driven solution, foundations don’t need to sustain grant funding on an ongoing basis.
In addition, a number of external factors have encouraged foundations to move beyond grantmaking. These factors include a recognition of the need to attract more private capital to close the Sustainable Development Goals (SDG) funding gap, a shift to a more engaged and strategic philanthropy, stronger focus on delivering outcomes, a new generation of investors with a social and environmental consciousness, a reconciliation of social and business mindsets, and a need to find new sources of funding in middle-income countries where there is less financing available from traditional donors.
What is required to succeed in impact investing?
Embarking on an investment journey will require a change in mindset, for which it is critical to have strong leadership that can maintain focus on the foundation’s mission while remaining flexible and open to innovation.
Making good investment decisions requires developing internal capabilities to understand financial instruments, negotiate terms, and value investments. External legal support may be required, especially when making investments in different geographies, where regulatory restrictions around investing may differ.
Impact investing is not the solution for all problems
Market-driven solutions are not always the right approach to reach the most vulnerable, who often cannot afford the services offered. There is a spectrum of social enterprises delivering improvements in learning outcomes, and impact investment may not be the right type of capital for all of them. Grantmaking can still be an important funding mechanism, especially for early-stage social enterprises that may not be able to attract other forms of capital yet, or to fund accelerators or incubators.
Nonetheless, impact investing increasingly presents an opportunity for foundations to explore other funding mechanisms that enable them to attract co-investors and bring more private capital into the education space. Impact investing can also help foundations expand the impact of their funding by providing the opportunity to recover capital and reinvest it in other solutions.