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Harvard Case - Wilson Family Foundation

"Wilson Family Foundation" Harvard business case study is written by Marc Lipson. It deals with the challenges in the field of Finance. The case study is 10 page(s) long and it was first published on : Feb 28, 2020

At Fern Fort University, we recommend the Wilson Family Foundation (WFF) pursue a strategic shift towards a more impact-driven investment approach by focusing on venture philanthropy and impact investing. This will involve a restructuring of their investment portfolio with a greater emphasis on social impact, while still maintaining a focus on financial returns. This shift will require a robust due diligence process to identify and evaluate potential investments that align with WFF's mission and values.

2. Background

The Wilson Family Foundation (WFF) is a private foundation established by the Wilson family to support various philanthropic causes. The foundation has a long history of supporting charitable organizations and initiatives, primarily through grant-making. However, the foundation's current investment strategy, focused on fixed income securities and traditional asset classes, has not yielded significant returns, and the family is seeking to maximize the impact of their philanthropic efforts.

The case study focuses on the Wilson family's desire to explore alternative investment strategies, including venture philanthropy and impact investing, to achieve a greater social impact with their investments.

The main protagonists are:

  • The Wilson family: The family is seeking to maximize the impact of their philanthropy and explore new investment strategies to achieve this goal.
  • The foundation's investment committee: They are tasked with evaluating and recommending investment strategies to the family.
  • The foundation's executive director: Responsible for managing the day-to-day operations of the foundation and implementing investment decisions.

3. Analysis of the Case Study

This case study presents a classic dilemma faced by many philanthropic organizations: balancing financial returns with social impact. To analyze the situation, we can utilize the following frameworks:

a) Impact Investing Framework:

  • Mission Alignment: WFF needs to clearly define its mission and identify investment opportunities that align with its core values.
  • Impact Measurement: Developing a robust framework to measure the social impact of investments is crucial. This could involve using metrics like Social Return on Investment (SROI) or Triple Bottom Line (TBL) reporting.
  • Financial Returns: While impact investing prioritizes social impact, it is still important to consider financial returns to ensure the sustainability of the foundation's activities.

b) Venture Philanthropy Framework:

  • Strategic Partnerships: WFF should focus on building strategic partnerships with non-profit organizations and social enterprises that are working towards achieving WFF's desired impact.
  • Capacity Building: WFF can provide more than just financial capital; they can also offer technical assistance, mentorship, and organizational development support to their investees.
  • Exit Strategies: WFF needs to consider how it will exit its investments, whether through a sale, IPO, or other means, and ensure that the exit strategy is aligned with its impact objectives.

c) Financial Analysis:

  • Risk Assessment: WFF needs to assess the risks associated with venture philanthropy and impact investing, including the potential for lower financial returns and the need for a more sophisticated investment management approach.
  • Capital Budgeting: WFF should conduct a thorough capital budgeting analysis to evaluate potential investments and ensure that they align with the foundation's financial resources and risk tolerance.
  • Financial Forecasting: WFF needs to develop a financial forecasting model to project the potential impact of its investments on its overall financial performance.

4. Recommendations

WFF should adopt a hybrid investment strategy that combines traditional asset classes with venture philanthropy and impact investing. This strategy can be implemented in the following steps:

  1. Establish a clear impact investment strategy: WFF should define its impact investment goals, identify target sectors and geographies, and establish a framework for measuring impact.
  2. Create a dedicated impact investment team: WFF should build a team with expertise in impact investing, venture philanthropy, and social enterprise. This team will be responsible for sourcing, evaluating, and managing impact investments.
  3. Diversify the investment portfolio: WFF should diversify its portfolio by allocating a portion of its assets to impact investments. This allocation could start small and gradually increase as the foundation gains experience.
  4. Develop a robust due diligence process: WFF needs to develop a rigorous due diligence process to evaluate potential impact investments, focusing on both financial and social impact metrics.
  5. Build strategic partnerships: WFF should actively seek partnerships with non-profit organizations, social enterprises, and other impact investors. These partnerships can provide access to deal flow, expertise, and networks.
  6. Monitor and evaluate impact: WFF should regularly monitor and evaluate the impact of its investments. This will help identify areas for improvement and ensure that investments are achieving their intended outcomes.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  1. Core competencies and consistency with mission: The proposed strategy aligns with WFF's mission to make a positive social impact while also considering financial returns.
  2. External customers and internal clients: The strategy addresses the Wilson family's desire for greater impact and the foundation's need for a more sustainable investment approach.
  3. Competitors: Many other foundations are adopting impact investing strategies. WFF needs to stay competitive and adopt a forward-looking approach to remain relevant.
  4. Attractiveness ' quantitative measures: While impact investing may not always offer the highest financial returns, it can provide significant social returns and potentially generate long-term value.

6. Conclusion

By adopting a hybrid investment strategy that combines traditional asset classes with venture philanthropy and impact investing, WFF can achieve its philanthropic goals while also ensuring the long-term sustainability of the foundation. This approach will require a shift in mindset, a commitment to impact measurement, and a willingness to take on new risks. However, the potential rewards, both in terms of social impact and financial returns, make this strategy a compelling option for WFF.

7. Discussion

Other alternatives not selected include:

  • Maintaining the current investment strategy: This option would not address the Wilson family's desire for greater impact and could lead to the foundation falling behind other philanthropic organizations.
  • Focusing solely on venture philanthropy: This approach could be too risky and could lead to lower financial returns, potentially jeopardizing the foundation's long-term sustainability.

Key assumptions:

  • Commitment from the Wilson family: The success of this strategy depends on the family's commitment to impact investing and their willingness to accept potential lower financial returns in some cases.
  • Availability of qualified investments: WFF needs to be able to identify and evaluate impact investments that meet its criteria for both financial and social impact.
  • Effective impact measurement: WFF needs to develop a robust framework for measuring the social impact of its investments.

8. Next Steps

WFF should implement the following steps to transition to its new investment strategy:

  • Phase 1 (Year 1): Develop a detailed impact investment strategy, create a dedicated team, and identify potential investment opportunities.
  • Phase 2 (Year 2): Begin allocating a small portion of the foundation's assets to impact investments and build strategic partnerships.
  • Phase 3 (Year 3 onwards): Gradually increase the allocation to impact investments, monitor and evaluate performance, and refine the investment strategy based on learnings.

This timeline will allow WFF to gradually transition to its new investment strategy while minimizing risks and ensuring a smooth implementation process.

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Case Description

An up-and-coming staffer at a small family foundation was considering whether to recommend a corporate bond investment to the foundation's investment committee. Her exploration was inspired by an article that identified some attractive corporate bond investments, and she was examining the merits of specific bond issues from Allegiant Travel, GameStop, and Western Union. Information is provided that would support a variety of bond pricing analyses, with a focus on uncovering possible mispricing and the drivers of that mispricing.

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