The F.B. Heron Foundation: 100 Percent for Mission—And Beyond

The F.B. Heron Foundation (“Heron”) is a philanthropic institution focused on helping people help themselves out of poverty.
In March 2017, Clara Miller, director and president of Heron, prepared her President's Letter highlighting significant organizational changes over the prior five years.

Miller joined Heron in 2011, bringing over three decades of nonprofit management experience.
Under her leadership, Heron underwent a strategic and operational transformation with the aim of aligning the organization’s investment practices with its mission.

Miller’s vision included advocating for a “philanthropic world” where all sectors—public and private companies, partnerships, nonprofits, and government—engaged in philanthropy in their regular operations.
By December 2016, Heron successfully invested 100 percent of its endowment towards mission fulfillment, resetting the investment policy statement and unifying investment program functions.

Founded in 1992, Heron started with a $152 million gift from an anonymous donor during a period of significant economic growth in the U.S.
The foundation aimed to combat widening economic inequality by assisting families facing persistent poverty, racial and ethnic discrimination, and market failures.
Heron's initial focus included self-help, personal independence, and empowerment, providing resources for disadvantaged families to build wealth through homeownership and financial literacy.

Initially, Heron took a conventional approach by maximizing financial returns to support its charitable aims, primarily concerning liquidity for the IRS's five percent payout requirement.
As early as 1996, board members of Heron recognized the need for a broader engagement of assets beyond traditional charitable distributions, contemplating integrating grant-making with mission-driven investment opportunities.
Program-related Investments (PRIs): Investments made to further charitable goals with expected below-market returns, counting towards the foundation's payout requirement.
Mission-related Investments (MRIs): Investments that align with philanthropic goals and aim for competitive returns, which do not count towards payout requirements.

In 1997, Heron made its first PRI to New Jersey Community Capital, a CDFI financing homeownership and employment in underserved communities.
In 2000, the foundation initiated its first mission-aligned investment from the endowment into Urban America, contributing to job creation in low-income areas.
By 2005, mission-aligned investments made up over 20 percent of Heron's endowment.

The 2007 global financial crisis underscored problems in the lending market.
Heron's insights during this crisis allowed it to invest more strategically in affordable mortgage-backed securities and shielded it from high-risk subprime mortgages.
Post-crisis, Heron recognized its initial poverty alleviation strategy needed reevaluation as the economic context had shifted significantly.

Under Miller's leadership, the realization emerged that structural poverty required solutions oriented around reliable, high-quality employment as critical to economic stability.
Heron began aligning its endowment management strategy to not solely look for financial returns but prioritize job creation.

Heron shifted its mindset to view all assets as mission aligned, committing to a belief that “all investing is impact investing.”
This paradigm emphasized integrating mission into all operations and programming rather than treating grants as the sole means of impact.

As a tax-exempt private foundation, Heron’s trustees have fiduciary duties of good faith, loyalty, and care that necessitate alignment of investment strategies with social missions.

Heron combined the functions of investing and grant-making into a unified capital deployment department.
This strategic change included defining investment policies aligned with enterprises rather than merely asset classes—supporting growth-stage businesses likely to employ marginalized workers at fair wages.

Heron adopts a broader view of risk, considering both social and financial dimensions, ensuring its investments are not only financially viable but also beneficial to communities and beneficiaries aimed at reducing poverty.

The foundation began work on a framework for assessing performance across its financial commitments, incorporating both social and financial benchmarks to measure overall impact.

Heron undertook a thorough examination of its portfolio to understand the social performance of its investments, assessing both positive and negative impacts on mission alignment.
By evaluating job creation and overall employment practices of businesses within its portfolio, Heron aimed to ensure alignment with its mission to serve underprivileged communities.

Stakeholders in values-based investing hold that impact investments should be assessed for their ability to create social outcomes that exceed what would occur without the investment—characterizing impact and additionality critically.

Heron sought to serve as a role model within the broader philanthropic sector, advocating for the adoption of its 100 percent for mission approach by foundations at large.
Prominent figures in philanthropy, like Darren Walker of the Ford Foundation, acknowledged the pioneering leadership of Heron in demonstrating viable models for effective impact investing.

As the organization reflects on its previous successes and prepares for the future, concerns about addressing income inequality and improving accessibility to economic prosperity remain.
The Heron Foundation is expected to continue striving to ensure that as long as poverty persists, their mission and investment trajectory remain relevant.

Clara Miller’s tenure at Heron stands as a legacy of innovation in philanthropy, illustrating significant steps toward cultivating a “philanthropic world.”
The journey entails continuous learning, adaptations, and the exercises of transparent strategies to influence positive change in the foundation sector and beyond.

Examine Heron’s portfolio from risk, return, liquidity, and impact perspectives. Recommend changes to Heron’s investment strategy based on your analysis.
Analyze Heron’s capital and operational costs. Provide suggestions for Heron’s investment and grant-making strategies.
Assume you are a presidential candidate for Heron; propose recommendations for the board based on insights from the CIO and COO.
As chairman of Heron’s board, should Heron operate in perpetuity or spend down? Justify your position.