In my first interview with Roy, we discussed his childhood, education, and career in law and financial services before joining the Ford Foundation as Director, Mission Investment. The story of how that happened is an interesting and fun one. In Part 2 of this interview series I talk to Roy about his work at Ford. In Part 3 we will discuss Roy’s concept of “Patriotic Capitalism.”

Roy Swan, Director Mission Investments

Eccles: Roy, thanks for coming back for Part 2. Part 1 ended with you leaving Morgan Stanley for your first day at the Ford Foundation. Was that a steep learning curve?

Swan: When I was leaving Morgan Stanley someone told me a joke: “Did you hear about the Lung Cancer Prevention Foundation? It made a killing in tobacco stocks.” That may fall into the “Bad Joke” category, but it’s a memorable way to describe the reality of the foundation world. The core mission of the foundation typically does not correlate with the endowment investment activity. In fact, some observers have commented that, like the Lung Cancer Prevention Foundation in the joke, some foundation endowments contribute to the very problems the foundation is trying to solve. By law, foundations must allocate 5 percent of their assets to their mission, the other 95 percent is invested in the public and private markets with some dry powder in cash.

About 15 years ago, when Clara Miller was President of the FB Heron Foundation, she characterized the 5 percent / 95 percent allocation of resources as a fundamentally flawed operating model for a foundation that claims to be in service to humanity. Her board agreed, and over a few years FB Heron’s endowment and mission were perfectly aligned. Its assets are 100 percent dedicated to impact investing.

About eight years ago, Ford Foundation President Darren Walker raised the same question about the 5 percent legally required grantmaking floor and asked the board. “What about the other 95 percent?”

Eccles: Clara is a good friend going back to the early days of the Sustainability Accounting Standards Board which we were on together. I remember that her foundation was the first to do that. But Ford is much bigger so what did your board say?

Swan: I wasn’t there, but my understanding is that there was great skepticism. As fiduciaries, the core responsibility of a perpetual foundation board of trustees is to preserve the foundation’s assets to continue its work into an infinite future. The board’s skepticism sprung from concerns not only about whether an impact investing endowment could generate returns required to sustain a perpetual endowment but whether it would make any money at all or even lose it completely.

Eccles: How can you prove you can make good returns in impact investing and not lose all your money?

Swan: You can’t. No one can predict the future, but that was the challenge the board put before Darren. The next best thing was to build an ironclad business case based on the past performance of others and predictions about your own ability to pick winning investments.

Eccles: So, what did you do next?

Swan: I didn’t do anything. Fortunately, at the time I was comfortably seated on the sofa of my Morgan Stanley office. Darren handed the task to the then Ford Foundation Vice President Xav Briggs, who handed it to one of the best thinkers in the foundation investment world, my colleague and Deputy Director, Christine Looney. Christine has an MBA and classic investment banking training but has spent the majority of her career in the foundation world. Megan Thompson, our team’s senior investment officer, also has an MBA and investment banking training. Together, under Xav’s leadership, they spent over a year building a case that convinced the board to move forward.

Christine Looney, Deputy Director Mission Investments

Eccles: So you came to the foundation after the hard work was already done and got a free ride.  Smart move on your part!

Swan: Timing is everything.

Eccles: As I recall, the board approved a $1 billion allocation of its endowment, which was $12.5 billion at the time. That was just eight percent of the overall endowment. Why not the whole thing like FB Heron?

Swan: There was doubt around the world as to whether impact investing could do anything more than break even at best. It’s harder in impact investing to make market-rate returns because the investment universe is narrower than traditional investing. That’s the challenge we embrace. My team invests in specific board-approved impact themes, which further narrows the universe of possibilities.

Because the board understood that impact investing is still in its infancy and we invest along narrow themes, our capital pool is being allocated to us over time. During the first few years, we were allocated $50 million, then $75 million, then $100 million per year. Over 10 years we’ll receive the full $1 billion. We’ve been putting it to work methodically. The money is not burning a hole in our pockets and one of my team’s mottos is “no FOMO.”

Eccles: Your impact themes started out as multifamily affordable rental housing in the U.S. and Financial Inclusion in the Global South. Then I heard somewhere that you now have six themes. What’s really going on?

Swan: When I arrived at the Foundation, one of my first objectives was to request board approval to broaden our investment aperture and think about new impact investment themes. The second was to think about the best way to achieve market-rate financial returns in an impact investing universe that is narrower than the broader markets, and the third was to establish a simplified and effective way of quantifying success.

For the investment themes, the two areas that were critical to me were the additions of a diverse fund manager impact theme and a quality jobs impact theme. We’ve since added two more so now we have six. The other two are Biotech/Healthcare and a general Inclusive Capitalism theme intended for direct investments that advance the field.

Eccles: How did you decide on the themes and success measures?

Swan: The Ford Foundation’s mission is to address the root causes and consequences of inequality in all its forms. Each of the foundation’s program strategies, which are basically lines of business, is designed to address inequality and correct biases, including in the arts, the workplace, technology, gender rights, etc.

In support of that mission, we took stock of major social problems where we think we can invest and address root problems, while simultaneously achieving market-rate returns.

For example, our multifamily affordable rental housing theme is designed to address the massive shortage of affordable housing in America. Our success metric is number of affordable rental housing units preserved or developed.

As another example, just 1.4 percent of the $80 trillion+ in U.S. assets under management is controlled by firms owned by women and people of color combined. Women and people of color make up 70 percent of U.S. population. In a capitalist system, if you don’t have access to capital, you have a BIG problem both for the people and the country.

Eccles: Wow! How many people know about that huge disparity?

Swan: I don’t know. I’m guessing not many because I don’t know how people in a position to do something about it would be able to live with themselves given that magnitude of discrimination. Part of our work is to raise awareness of problems right under peoples’ noses that they may not see. We also lead by example. Our portfolio is controlled 65 percent by firms owned by women and people of color.

Eccles: I’m getting the picture here. You look at big problems, use common sense success measures, and lead by example.

Swan: I couldn’t have said it better.

Eccles: Thanks. That’s quite a compliment coming from a Princeton grad to an MIT grad! Is there an overarching objective or commonality among the themes?

Swan: My team focuses on capitalism. Our objective is systems change—making capitalism work better for more people. We not only invest in existing fund managers, we collaborate and sometimes lead efforts that create solutions to problems. In other words, we don’t just wait to see what comes in the door from fund manager solicitations.

Eccles: So that goes beyond just investing. How does your team straddle both?

Margot Brandenburg, Senior Program Officer, Mission Investments

Swan: That part of our work is handled by Margot Brandenburg, our team’s Senior Program Officer. She is the thought leader in the impact investing and ESG grantmaking world. She literally wrote the book on impact investing as co-author with former Rockefeller Foundation President Judith Rodin of the book The Power of Impact Investing. Margot was in the room with Darren and others like Amit Bouri, Alex Friedman, and Antony Bugg-Levine, when the term “impact investing” was coined at the Rockefeller Foundation’s Bellagio Convening Center in Italy.

The Mission Investments program is like a foundation within a foundation. We have grant capital to advance the impact investing and ESG infrastructures and entities focused on increasing economic opportunities, catalytic capital that can invest in market-rate or non-market-rate opportunities, and endowment capital that invests only in market-rate opportunities. The board brilliantly constructed Mission Investments to be a program that can think and engage across the full capital spectrum and allocate capital where we can leverage our expertise to make a positive impact.

Eccles: How much have you invested to date?

Swan: We’ve committed over $400 million.

Eccles: Is Ford Foundation’s commitment to impact investing still the largest among its peer foundations?

Swan: Yes, seven years later Ford’s commitment is still the largest. But we are hardly the only player in this space. Beyond Clara and FB Heron, other impact investing pioneers in the foundation world are the Rockefeller Brothers Fund, the W. K. Kellogg Foundation, the John D. and Catherine T. MacArthur Foundation, the Kresge Foundation, the McKnight Foundation, the Wallace Global Fund, the Surdna Foundation, Omidyar Network, and the Open Society Foundations.

Eccles: When you look at your investments so far, you’re proactively looking at where you can make a difference. How does that break out now between opportunities brought to you and opportunities you thought of yourself?

Swan: Investing these days is about half of my job. I spend an enormous amount of time writing and speaking with people from the public, private, philanthropic, nonprofit, policy, and academic sectors, sharing what I’ve learned over the years and helping them think through new concepts and ideas on how to make impact investing work for them because there are so many ways of looking at this.

I’ve had unique life experiences—growing in what I endearingly refer to as mid-to-upper-lower-class, experiencing the precariousness of bill collectors threatening to take our home, being one of the free lunch kids at school when my dad was laid off from work, and then to the Ivy League, sitting in classrooms taught by Nobel prize-winning professors, holding jobs in top investment banks, serving as CFO of a publicly-traded bank, being responsible for billions of dollars in regulated bank loans and investments, serving on about a dozen boards over the last two decades, etc.

Positive Man standing on top of the mountain with arms raised celebrating his success (Photo: iStock)

Eccles: You have indeed led a remarkable life with an impressive career. It is an example of how good things can happen in America. I just wish it happened more often.

Swan: Completely agree. My personal success doesn’t mean much unless it is shared in a way that helps people and advances the common good. It’s all about creating system-level change and trying to be an example of that.

Eccles: It’s interesting that you left Morgan Stanley to come to Ford to then council the private sector to do exactly what you were doing before.

Swan: I’m the same guy at Ford that I was at Morgan Stanley, but at Morgan Stanley, in some circles, I wasn’t trusted. I was once told by a white man who was a bit of a progressive activist: “We thought you were an empty suit Black Republican that was propped up by Morgan Stanley because it would look good.” His perception was that my department was the gnat on the tail of the ruthless capitalist elephant pretending to do good. He eventually figured out I was authentic and competent, and that Morgan Stanley was serious about our impact investing work.

Eccles: Does that change how you think about your work now?

Swan: At the end of the day, we exist to help advance the human welfare.  We invest everywhere from the inner cities to Appalachia to Latin America to Africa to India to Indonesia to the Middle East.

I came to the Ford Foundation because it is possibly the most credible and trusted philanthropic organization in the world. The Ford Foundation platform is an impregnable fortress of ethics and integrity to advance the common good. I know that people listen to me not because I’m Roy Swan, but because I’m a Ford Foundation director.

Eccles: Fair point but I think you’re being overly modest. Anyway, what does the next phase of your work look like?

Swan: Although the purpose of impact investing is to invest capital in ways that make the world a better place, and ESG is meant to make a company’s operations more transparent by encouraging disclosure of previously hidden information, both terms have been weaponized by polarizing populist opportunists to make them seem bad. This is especially the case with the term “woke,” which was originally a positive term meant to encourage awareness and acknowledgment of anti-Blackness, but has been converted to mean something bad.

Choice of words is important in our current tinderbox political and cultural environment. To avoid accidentally sparking an explosion of anger, fear, and defensiveness, I tried to think of a word that was imbued with the weight of historical meaning that reflected our intentions. We are trying to improve capitalism for the sake of the nation—shared prosperity and social stability. In other words, everything we do prioritizes country, democracy, and the common good.

Eccles: Yes, what’s happening with what I call the “ESG Culture Wars” is bringing out the worst in America, not the best. With words being weaponized we need new ones that are hard to do that with. What’s on your mind?

Swan:  The word that comes to mind for me, and it’s acceptable across the political spectrum, is “Patriotic.” It means devotion to one’s country, including the care and feeding of fellow citizens. I’d like to avoid skirmishes based on superficial political opportunism. We are singularly focused on sharing our thoughts and taking action to make capitalism work better for more people, which will not only benefit the bottom line but our nation as a whole. This is why I’m calling it “Patriotic Capitalism.“

Benjamin Franklin On A One Hundred Dollar Bill With American Flag And Gold Bar (Photo: iStock)

Eccles: I like that concept a lot and it will be the basis of our next interview. But I’d like to end this on a personal note. What is it that’s driving you to do the things you do?

Swan: One of the core beliefs I have is, I’m a preacher’s kid who believes that we are here to help each other and to whom much is given much is expected.

I am not wealthy, but thanks to divine intervention I have scratched and clawed and inched my way down the field from my precarious mid-to-upper-lower-class starting point. That means I have more than most people. I get my greatest satisfaction from using everything I’ve got to help others. I wanted a job where I was paid to help people. I’m a failed pre-med, and for many years I regretted my failure to achieve my dream to become a doctor.

But, at some point, I realized that capital could scale much better than a doctor can. I spend time talking with individuals and audiences from all over the world about ways to achieve positive returns and make positive changes for the benefit of human welfare with capital in ways I could never achieve as a doctor, serving just one patient at a time.