INVESTING FOR IMPACT

Dwight Poler

An Edited Transcript of a Conversation with

Boston Foundation Donor Dwight Poler for the

 2017 Boston Foundation Annual Report:

The Problem Solvers

How a Group of Unusually Creative Philanthropists

Are Helping to Solve Some of Boston’s Big Problems

TBF: Tell us about the Impetus Private Equity Foundation.

DP: As background, a few years after I arrived in London, [Dwight Poler founded Bain Capital’s Private Equity business in Europe in 2000 and managed it through 2017], and was serving on a board of the National Society for the Prevention of Cruelty to Children (NSPCC), three of us were tasked with raising money from Private Equity Firms. Our fundraising ideas quickly evolved into thinking about adapting what Bain Capital Children's Charity had been doing for years: The partners held an annual golf event for our advisors, who donated funds to our Children's Charity, we partners then matched that, and we distributed the funds to a wide variety of charities, on each of which at least one of our employees needed to be actively involved on a volunteer basis.

We refined that idea on two important fronts: First, instead of raising money from just one firm's advisors, we could raise much more money if we banded together many Private Equity firms (beginning with 8, we soon had well over 20).  Second, and more importantly, we considered how to apply more "principles of private equity" to the deployment of charitable funds.  

We defined a core "need": helping youth "Not in Education, Employment or Training," referred to by the UK government as "NEETs," to help children who had all the drive we had, but not the “starting advantages.”

We began with the discipline of rigorous due diligence to selecting charities. This included: assessing the best preventions and interventions available; identifying those organizations on most promising trajectories; backing specific inflection points of impact and growth; and assessing quality and depth of management.

Then we, along with our investing advisors, provided strategic support alongside capital, focusing on enabling capabilities "behind the scenes," including strategy and organizational development from our consulting firms, IT support from our IT advisors; accounting support from our accounting firm partners; legal support from our law firm investors and structure. Our grants were typically for 4 years, milestone-based along specific "business plans" toward becoming economically self-sustaining, and with a planned "exit" on the horizon when more permanent funding became realized.  

TBF: What is the status of Impetus Private Equity Foundation now?

DP: It’s ongoing and very active. We merged the Private Equity Foundation and Impetus, a similar approach largely funded by venture capitalists, and the impact for all has been excellent.

We have had many successes: fundraising at £5-8 million per year; finding many great organizations, developing deep organizational capabilities and implementing early social impact bonds with government, all while also providing much needed "pro bono" opportunities for the employees of our investing partner firms.

We invested in 27 charities during my tenure and were involved in activities from early stage prevention (from primary school literacy and numeracy support to university aspiration and preparation), to intensive late stage interventions (such as personalized support to students struggling to stay in school or retired military mentoring those struggling to return to the workforce).   

We certainly confronted challenges in the nonprofit space that are hard to summarize, but they involved: fragmentation and duplication of nonprofit initiatives; fundraising challenges of donor fatigue and staff turnover; and most importantly "mission drift,” an understandable "evolution" of strategy in hopes of raising more money that spreads efforts too broadly and resources too thinly while trying to be "all things for all people."

Another major problem was management capability.  We found that few charities survive their founder, yet few founders with the entrepreneurial zeal to start a charity remain the best right managers to take it to large scale, a problem throughout the nonprofit and for-profit world. The raw talent and commitment of management was often incredible, but the resources to develop and retain that talent—as accomplished in the crucible of the for-profit market economy—was often limited. 

TBF:  You are interested in the concept of impact investing and mission related investments. Tell me what intrigues you most about this approach.

DP: The socio-economic tension that has arisen from uneven access to opportunity has reached a destructive stage, and many “donor-investors” seek a path to address this through philanthropic investing.   I believe the full potential of these large donor pools is not yet realized, as there remains too much confusion about whether impact investing can really deliver full financial as well as “social returns,” and how to select and measure those available both effectively and consistently. Once we can demonstrate those outcomes, and refine the models, there is great potential to channel more resources from investors with substantial capital - many not yet deploying - to those in need.  Even more impact is possible if we can structure investments where the profits regenerate those pools, based on strong performance.

TBF: One basic question is whether there is room for both of these approaches when it comes to working with nonprofits—both philanthropy and impact investing.

DP: Absolutely, there is room for both. I think there is need for both. Impact investing works well when there are other sources of funding in the system, but when that other funding requires a catalyst or a proof of concept. What I find most interesting is the area of economic self-empowerment—being able to invest behind something that actually creates jobs and creates a source of funds that doesn’t become donor-dependent. What I mean by that type of sustainability is that recipients don’t need to keep going back every year hoping a donor is still interested and willing. I would like to see more approaches which get to a system where, as long as the “investment” generates returns (social and economic), the returns can and will be dedicated to keep furthering the original social mission.

TBF: Do you see this appealing to someone who might not consider themselves philanthropic? Is there actually a possibility of a real return?

DP: I think so. I think we’re still in the early stages but I’ve started to see some social impact fund returns that truly are market-level, while filling a capital void and accomplishing a social good.   I have heard some more investors see ESG investing as the “opposite of a risk,” where they are now focused on not being focused on ESG (Environmental, Social and Governance) issues as a key risk in their portfolio, and they see impact-oriented investing as a risk mitigant.

I think impact investing could ultimately be a significant part of an institutional portfolio. And if and when we could structure economically self-sustaining funding, where generated returns are reinvested to further the social investment, I think you’ll see a compounding of the impact that will bring in a whole new class of investors.

TBF: What specifically interested you in the Pay for Success model? Is it primarily the way in which the investments are structured or is it the work: providing low-income immigrants with vocational English skills so that they can become tax-paying, employed workers?

DP: I like the "pay for success" model (to which I was first exposed working on  a social impact bond in the UK many years ago) because it presents an opportunity for a truly long-term, scalable funding source. And developing vocational skill in language also creates economic self-empowerment for the immigrants which compounds the positive impact. Upon the "proof point" of clear Key Performance Indicators being met, the charity avoids the risk of donor fatigue leading to diminished funding over time— and thus recipients avoid feeling they survive at the "whim" of donor largesse.  

In the UK, where the government is often the ultimate finding source for social programs, SIBs enable a path to test more innovative solutions with effective "risk capital" and then realize "permanent" funding for those solutions which are most effective, rather than hoping the government would develop the right solution from the start (and sustain it without political interference).

TBF: You’re familiar with the ROCA model, which evaluates the cost of incarcerating a young man or woman as a way to pay for success. That seemed like a very straightforward equation. If this young person is not incarcerated, then it saves the state’s money and the investors will get their return. This Pay for Success model seems more intricate than that. In this case, it takes into account the money these people will be putting into the economy assuming they do learn English, get a job and become contributing people to our society.

DP: Yes, it’s more complex, but economic empowerment is a powerful multiplier.   I think you’re on to the right challenge when the outcome is a softer, harder to quantify outcome—as opposed to a formula that says, “we know a prisoner costs us ‘x’ and if the person isn’t imprisoned, it saves ‘x.’” But that shouldn’t stop us from trying.  Some won’t work perfectly, but we must not read the wrong lessons from shortfall if that happens. As we move away from the really straightforward ROCA-type models, and people say, “the pay for performance model doesn’t work,” it’s important to say, “This one didn’t happen to work.” And then explore why.

TBF: Are there other areas of life in which you could imagine this model working?

DP:  I think another really interesting impact investment is urban regeneration.  This has proven a tremendous catalyst.  Rural regeneration will perhaps be the next hard challenge to face.

TBF: On another topic, how has the Boston Foundation served as an effective partner for you?

DP: In terms of funds deployment: TBF has been creative in finding effective organizations that meet my desired philanthropic goals, assessing which of several options are most effective and acting as a sounding board for my personal and family strategy.  

In terms of funds management: TBF offers truly top quality asset managers and returns, which means that I can channel funds to TBF as soon as I can, rather than feeling like I need to hold and manage those for returns until I know exactly how I will give.  TBF’s investment performance has been competitive with the best portfolio managers available.   

TBF: On a broader theme and related to the Boston Foundation’s 2017 Annual Report, The Problem Solvers, what do you think are the greatest problems facing Boston today?

DP: As I spend much of my time abroad, public transportation would be my number one. Having lived in other cities around the world, the public transit system (particularly underground) in Boston is unfortunately archaic in comparison to cities of Boston’s stature and importance. Public transport is a dramatic limiter on the growth of the economy, and creates a problematic tension between the growth of the urban business environment and the cost of living in the city.  We need to find a better way to get people into and - (further) out of - the city to effectively balance job creation with sustainable living.