The Robert Wood Johnson Foundation Has High Hopes for Its Program-Related Investment Arm

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Our recent reporting about the Robert Wood Johnson Foundation’s grant to Just Value focused on an issue that isn’t on many funders’ radars: the impact of systemic bias in home appraisals on the ability of Black and lower-income homeowners to maintain and build wealth in their houses. While the preservation of home ownership is a vitally important issue, RWJF’s Just Value grant also offers a look into the foundation’s strategies around impact investing, as well as a few valuable lessons about flexible funding, risk management and leveraging limited budgets for the greatest possible impact. 

In Just Value’s case, the money didn’t come from one of RWJF’s established grantmaking programs. Instead, the funds were moved from a separate fund that the foundation launched in 2020 that eventually dedicated $300 million specifically to impact investing. And just this week, the foundation announced a $325 million allocation to its impact investment funding, more than doubling its total commitment to $625 million.

Program-related investments are a subsection of the overall world of impact investing, and governed by IRS regulations stipulating that they can’t be made with the expectation of a market-rate return. In other words: All program-related investments are impact investments, but not all impact investments are legally recognized as being specifically program related. The bottom-line difference is that program-related investments, unlike impact investments overall, count toward funders’ annual 5% payout requirement. That may seem like a trifling difference, but it could be enough to encourage more foundations to take the plunge.

RWJF’s program-related investment initiative is just one prong of its overall impact investing work, all of which targets social determinants of health. Its PRIs are likewise devoted to investing in for-profit, private companies and nonprofits working in four areas: home ownership preservation; water infrastructure; community development, and investments in RWJF’s home state of New Jersey.

To complicate the picture just a bit further, the foundation’s program-related investment arm also makes a limited number of grants. Those grants are made in three general buckets. In some cases, a grant is made on top of an impact investment to further support a recipient. In others, money is moved to support field research into the effect of program-related investing. The Just Value grant is an example of the third instance — seed money provided to a company that RWJF hopes will eventually be something it can make a program-related investment in. 

The goal of grants like the one made to Just Value, said RWJF Impact Investment Lead Zoila Jennings, is “here’s some dollars … and [let’s] see if it's something that we or other investors can invest in.” 

“Where we can actually make a dent”

As a foundation, RWJF has moved grants related to home ownership for a number of years through its Healthy Communities portfolio. But the $625 million that RWJF has shifted into its impact investments budget is still a relatively small amount next to its roughly $12 billion in net assets. In the beginning, with $300 million to work with and three separate priorities that needed funding, the team’s leadership decided to get creative.

Originally, Jennings said, the team was “playing around” with ideas about how best to address the connections between the racial wealth gap (which contributes to racial health disparities) and “ownership” more generally. Discouraged by the size of the problem relative to its available budget – which, of course, is still very sizable in philanthropy terms – RWJF engaged McKinsey to help determine how best to leverage its dollars for the biggest possible impact.

“We ended up in home ownership preservation because it felt like it was right sized,” Jennings said. “There aren't a lot of players looking at it. There is a lot we could do with $100 million or so over the next five years.”

”It's a huge issue that affects health,” she added. “If we are really targeted and focused, we could make a meaningful impact.”

“We can be risk tolerant”

RWJF’s program-related investment initiative also shares a goal with programs under the Sorenson Impact Group, including the Sorenson Impact Foundation, which my colleague Ade Adeniji covered recently. The foundation’s goals include attracting an additional $1 billion in investments from other entities, including philanthropic organizations, by the end of 2025.

Though impact investing is nothing new at this point, there’s reason to believe that foundation momentum in adopting it has slowed. Both Sorenson and RWJF hope to encourage other philanthropies to get involved in impact investing, including making program-related investments. PRIs in particular may be attractive to otherwise risk-averse foundations, Jennings said, citing the fact that such investments can be counted toward their annual tax-code-mandated 5% payout requirement. Jennings said that she hopes that her program will eventually earn just enough money to be self-supporting. 

“We're trying to show folks we can be risk tolerant,” she said.

Editor’s Note: The original version of this article reported that RWJF’s PRI work began in 2021; it was announced then, though the commitment to start was originally made in 2020. It also mistakenly omitted the facts that PRI investments also go to nonprofits and toward community development. Finally, RWJF dedicated $100 million to impact investments in 2020 and $200 million in 2021, not a total of $200 million as originally stated.