Inside the Pershing Square Foundation: A “Catalytic” Funder on the Fast Track

Over the past decade, over 15,000 new foundations have been established in the United States. Most exist only on paper, without staff or websites. But this period has also seen the emergence of major professional outfits that have hit the ground running, and promise to get only more active in coming years.

Among the most notable of these new grantmakers is the Pershing Square Foundation (PSF), based in New York City, which the hedge fund investor William Ackman established with his wife Karen in 2006.

Pershing Square is worth paying attention to for several reasons.

First, the Ackmans are emblematic of a new generation of donors who are fast changing the face of philanthropy. They jumped into big-time giving early in life, rejecting the old model of making money first and giving it away second—as is the case with more and more wealthy people these days. Long before they started their foundation, the Ackmans were involved in different causes, and meanwhile, their pile of money has continued growing. Last year, Bill Ackman’s hedge fund delivered a 37.2 percent return, and his net worth is now estimated by Forbes at $2.5 billion.

Second, the Ackmans have wide-ranging interests, and so the Pershing Square Foundation has fast become a player in various parts of the nonprofit world. In recent years, it’s made grants for global health and development, K-12 education, criminal justice, human rights, college access for undocumented immigrant “DREAMers,” Jewish causes, public parks, cancer research, and more. PSF’s annual giving has risen from $7 million in 2008 to $33 million last year.

The foundation doesn’t typically throw around the kind of money that can disrupt a whole field (not yet, anyway), but the way it’s become an active grantmaker in many spaces underscores how quickly the funding scene is changing. Every time we turn around, it seems, a new billionaire funder is getting behind this or that cause. Today’s early-life philanthropy, combined with the outsized fortunes of a second Gilded Age, means that you never know who’s going to show up in your niche pushing a wheelbarrow full of cash.

Third, the Pershing Square Foundation is notable for how it operates, and its focus on being a “catalytic" funder. Writing checks for good work is not enough for many of the emerging donors; instead, they want their money to be pivotal in some way, leveraging change that would not otherwise have occurred.

This is hardly a new goal of philanthropists—John D. Rockefeller had the same aspiration a century ago—but it’s never been the norm for wealthy givers, many of whom still make their biggest donations to well-established cultural and educational institutions. One reason that more living donors don’t embrace a strategic approach to philanthropy is that it’s complicated. If you’re busy making money, there’s only so much time you can put into giving it away.

Increasingly, though, a new generation of billionaires is determined to give in savvy ways while still in the prime of their business careers. And often they do it like Bill Ackman has: with a spouse that plays a hands-on role, other family help (in this case, Karen Ackman’s sister, Amy Herskovitz, a senior exec at PSF), and by hiring a handful of professional staff.

Since 2010, the executive in charge PSF has been Paul Bernstein, who came to the foundation from London, where he built an NGO called Absolute Return for Kids that aids children in poor countries. Recently, Inside Philanthropy talked with Bernstein about what PSF is up to and how it operates.

Looking to be Catalytic

One key point Bernstein makes about the foundation is that it’s not interested in “being where everyone else is.” PSF’s notion of being catalytic is that it focuses on making new things happen rather than joining efforts already underway.

Bernstein relates a telling anecdote about an early conversation he had with the Ackmans when discussing the new job. He asked them if they had an interest in giving for HIV/AIDS, which Bernstein had worked on for years, and which was (and is) still ravaging Africa. The Ackmans said such funding wasn’t in the cards because of all the work already being done in this area. “They didn’t see where they could be catalytic.”

So what, exactly does PSF mean when it talks about catalytic philanthropy? Bernstein says that this approach is characterized by a few elements. At a broad level, “the way we think about things is: How to do we find the best people and back their innovations to scale in order to have the most impact.” The foundation, he says, doesn’t specialize in any particular issues, or limit itself by established program priorities. Instead, it takes an opportunistic approach which “enables us to look around, find talent, and back it.”

While most foundations have their standard list of priorities and funding areas, PSF is different. “We’re not a focused foundation in the traditional model,” says Bernstein.

Which raises an obvious question: How does PSF decide where to put its money among an endless array of possible choices?

Bernstein describes a set of filters that the foundation uses to make choices. To begin with, it doesn’t back organizations that are just starting up. Bernstein says that other funders, like Echoing Green, already do a great job of identifying social entrepreneurs with strong ideas, providing seed money and support. PSF aims to come in at the next stage—helping successful start-ups get to scale.

“What we’ve observed is that once organizations have gone through early stage and proof of concept, that it’s hard then to step up to funders that can do six- or seven-figure grants,” says Bernstein. PSF’s funding, then, doesn’t play a catalyst role the way that kindling might for a fire. Rather, the foundation sees its niche as stepping forward to throw the first logs on a fire that’s already burning, to get behind a scaling effort.

So how does PSF determine whether an organization is ready to truly catch fire and scale? For starters, it looks to see if the obvious building blocks are in place, such as evidence that a model is having impact, a strong team of staff and board members, and sound management operations. Bernstein says that the foundation also wants to see that an organization can be sustainable, with revenues.

Ultimately, though, PSF is similar to many venture firms in that it puts the most emphasis on the individuals behind an organization. It’s looking for people with a big vision who “really could change the world,” says Bernstein. He cites the co-founder of the One Acre Fund, Andrew Youn, as a case in point.

That organization, which PSF has long supported, aims to bolster the productivity and income of small farmers. When PSF first got behind One Acre, it served maybe 10,000 farmers. Now it’s serving over 200,000—which Youn still sees as a prelude to much bigger things to come. The fund predicts it will serve one million farmers by 2020, and keep growing. Why is this vision exciting? Because, according to the fund, farming is the dominant economic activity of the world’s poor. A model that can scale—giving farmers more financing and better training, along with market insights to maximize their profits—could be transformative for millions of people.

Andrew Youn, who lives in Rwanda, has an unusual background. He’s a graduate of Yale University and received his MBA from the Kellogg School of Management. Yet he’s devoted his life to helping the world’s poor farmers make more money. That’s the kind of person PSF likes to get behind, and to help nurture more such leaders it’s supporting an M.B.A. scholarship program at the Said Business School at the University of Oxford. A gift from the foundation underwrites up to five M.B.A. students a year, backing “individuals with a passion for tackling world-scale challenges while delivering sustainable and scalable impact.”

A Mix of New and the Old Strategies

Most of PSF investments take the form of traditional grants to nonprofits. But like so many funders these days, it’s branching out to impact investing, and increasingly has a keen eye out for market-based ways to solve problems. “If you can find a for-profit solution to the problem, then that is something we’re more likely to support at the foundation,” Bernstein says.

For example, PSF is among the backers of Bridge International Academies, which educates kids in poor countries through low-cost private schools. (See our coverage of that group here.)

Bernstein predicts that the foundation will be putting money into more for-profit ventures in coming years and here, too, PSF is emblematic of key trends reshaping philanthropy.

At the same time, though, it would be wrong to think of PSF as yet another emerging funder that’s only interested in business-like models—or one that’s dismissive of traditional nonprofit strategies. In fact, PSF is a big supporter of some well-known advocacy groups, most notably Human Rights Watch (HRW) and the Innocence Project. In the case of HRW, where Karen Ackman sits on the board, PSF’s support goes way back, and the foundation has supported the group’s efforts to broaden its global presence in recent years.

That support, says Bernstein, is an example of the wide lens that PSF uses when thinking about being a catalyst. If there’s a chance to help a mature institution known for its impact get to a new level of effectiveness, this is also the kind of thing that intrigues the Ackmans.

An Eclectic Worldview

The foundation’s investments in Human Rights Watch and the Innocence Project underscore why it’s hard to pigeonhole this funder. On the one hand, PSF would seem to reflect the typical interests of a Wall Street hedge fund guy, backing entrepreneurs with “scalable models.” Also, Bill Ackman was the largest donor, after Mark Zuckerberg, of a push to improve Newark’s public schools that’s been heavily criticized as a clueless top-down effort that foundered due to a failure to get community buy-in. In politics, Ackman gave over $70,000 to the Republican Party during the 2012 election cycle.

On the other hand, though, Ackman’s hedge fund winnings have bankrolled causes more associated with progressive donors. Just look at PSF’s big investment in scholarships for undocumented immigrant college students, the so-called “DREAMers.” Earlier this year, PSF gave $10 million to TheDream.US, an organization co-founded by former Washington Post publisher Donald Graham. Then, this spring, PSF committed another $15 million to the organization, for a total of $25 million.

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So what’s up with PSF’s heavy support for some of the marginalized groups in America—whether they be undocumented immigrants or convicted prisoners? Well, it’s tempting to imagine that this is a familiar case of the centrist business guy married to the more liberal spouse, a not-uncommon story in philanthropy. In this case, Karen Ackman’s sister, Amy Herskovitz, who has a BA from Bennington College and a social work degree with NYU, has also played a key role in helping build the foundation.

But before thinking you’ve seen this movie before—he backs his causes, she backs hers—it’s worth noting that Ackman’s own worldview is not so typical of hedge fund billionaires. In his Giving Pledge letter, Ackman wrote that he was very influenced in college by the writings of John Rawls, the liberal philosopher who famously argued for a fairer way to organize society—one in which people wouldn’t be doomed if they were born poor.

While it’s not so easy to square a Rawlsian outlook with generous support for Mitt Romney’s presidential campaign—this was a candidate who, among other things, promised to veto the DREAM Act if it ever passed—I should add that Ackman gave big gifts to the Democratic Party in 2013 and 2014, a track record that underscores his lack of a firm ideological set point.

The Growth to Come

Whatever the case, one thing is clear: As philanthropists, the Ackmans have wide-ranging interests that lead them to back both emerging social entrepreneurs and more traditional efforts to help the disadvantaged. Additionally, the Pershing Square Foundation plunged into cancer research last year in a big way, by financing a new set of awards for young cancer researchers in New York City, as we’ve reported. They also recently supported research at Harvard on the foundations of human behavior, and other research efforts.

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Paul Bernstein acknowledges that the Pershing Square Foundation has a lot going on, and says there’s a keen awareness that it needs to effectively steward the work already underway. So as a practical matter, it’s not clear how much PSF will expand its portfolio of grantees in the near term, especially given its lean staff.

Looking down the line, though, bigger money is sure to flow through PSF. In his Giving Pledge letter, Bill Ackman said that he and Karen are likely to commit substantially more than half their fortune to charity. And since that fortune only seems to get larger, we’re talking a lot of money.

Bernstein says the foundation doesn’t work with a budget or have any specific timetable for growth. “Some years we’ll do more, some years less,” he says, depending on the opportunities that come along. But Bernstein says that there’s every expectation—both among the Ackmans and the foundation staff—that the overall trajectory of giving will keep rising well into the future.