The Rockefeller Brothers Fund: A 19th century fortune tackles 21st century problems

The Rockefeller Brothers Fund has left its mark on America.  Founded in 1940 by five sons of John D. Rockefeller Jr.--John 3rd, Nelson, Laurance, Winthrop, and David--it has been a major supporter of New York's Riverside Church (where the family worshipped), the Museum of Modern Art (which their mother co-founded), Colonial Williamsburg (where JDR 3rd and Winthrop chaired the board) , a national park in the Virgin Islands (where Laurence developed an eco-resort), the Asia Society (where John 3rd was the first president) and Spelman College (named in honor of Laura Spelman Rockefeller, wife of John D. Rockefeller, Sr.). Who says philanthropy isn't personal?Lately, though, the RBF, as it's called, has been better known for its investments than for its grant-making. In 2014, RBF made headlines everywhere--The Times, The New Yorker, CNN, The Guardian--by announcing plans to divest from fossil fuels; the decision to stop investing in oil and gas by the heirs to a vast oil industry fortune was an irresistible story. While the divestment campaign is symbolic -- it has produced no more than at blip, if that, on the world's financial markets --  it has set the stage for productive debate on college campuses and in foundation boardrooms as well as, to a lesser extent, on Wall Street. As Stephen Heintz, president of the RBF, told me in 2015: “This is largely symbolic, but symbols have power. They motivate people. They inspire people. They can change behavior.”Last week, I sat down with Stephen Heintz to get an update on fund's divestment process and to discuss RBF's mission-aligned investing which, we agreed, has more immediate impact than divestment. We also talked a little about the fund's grant-making and about why a foundation built by a 19th century fortune should persist into the 21st century. (Speaking of persistence, on a personal note: Stephen and I were meeting for the first time since the early 1980s, when he was Connecticut's welfare commissioner and I covered state government for The Hartford Courant.)The RBF's endowment is valued at about $840m, Heintz told me.*  When the decision to divest fossil fuels was announced in September, 2014, about 6.6 percent of the money was invested in coal, oil and natural gas companies; now the figure is about 2.9 percent, and the RBF has shed its coal company stocks. It's impossible for an outsider to quantify the impact of divestment on the RBF endowment's performance, but, given that S&P's Global Oil Index has underperformed the market as a whole for the past three years, the effect has likely been slightly positive. Needless to say, that could change.Perhaps surprisingly, the divestment movement doesn't seem to be gathering momentum in philanthropy. Since the RBF's big announcement, none of the biggest foundations that focus on climate change - Hewlett, Packard, MacArthur or Bloomberg Philanthropies -- has divested. Hewlett took a small step in 2015, but that's about it.More interesting, in any event, are the RBF's mission-aligned investing efforts. The idea behind them is to invest the foundation's money in ways that further its mission to build a "more just, sustainable and peaceful world." Nearly 40 percent of the endowment is now deployed either as impact investments, which deliver "a defined and measurable impact," or in broad-based ESG funds, which are screened to exclude companies that fail to meet environmental, social or governance criteria. In neither category are investment managers permitted to sacrifice financial returns. "It's a pretty high bar," says Heintz.The RBF has surpassed one of its initial goals, which was to deploy 10 percent of its endowment as impact investments. Current impact investments include $20 million in the Turner Multifamily Impact Fund, which invests in affordable housing; $20 million in New Energy Capital, which invests in renewable energy projects; $20 million in a Sustainable Asset Fund run by Vision Ridge Partners and Capricorn Investment Group; and $15 million in the Climate Solutions Fund managed by Generation Investment, the London-based asset manager in which Al Gore is a partner. The RBF now intends to deploy 20 percent of the endowment to impact investments.These commitments provide critical funding for projects that make the world a better place. Beyond that, Heintz said, the growth in impact investing has begun to affect the thinking of asset managers: Private equity funds are being reconstituted to exclude fossil fuel projects, or to focus on clean energy or job creation in the inner city. "These signals are beginning to change the market," he said.Another $231 million of the endowment, or about 27 percent, is invested in ESG funds. They include Generation's Global Equity Fund, which invests in 30 to 60 high quality businesses, Dimensional's International Sustainability Core 1 Portfolio (interestingly, a mutual fund open to retail investors), and a fund managed by Perella Weinberg, which the RBF hired in 2014 as its outsourced chief investment officer. These funds should, over time, reward companies that take an expansive view of their social and environmental responsibilities.

Ahead of its peers

Outsourcing its investment management helps keep the RBF's investment costs down. Most of the US's biggest foundations have their own chief investment officers; whether they are worth their high salaries is impossible to know, because most of the big foundations don't disclose their investment performance. Nor does RBF, at least not in a transparent way.Aside from that, the RBF is well ahead of its peers when it comes to aligning its money with its mission. It's moving faster and farther than the Ford Foundation, which recently announced it would allocation 10 percent of its endowment to impact investing, over the next 10 years. The Gates Foundation lags even farther behind although, in fairness, Ford and Gates are much, much bigger than the RBF and thus harder to steer.This isn't to say that the RBF has mission-aligned investing all figured out. Heintz told me: “We’re in a period now when the question on my mind is, are we going to be able to maintain the momentum?” As a private foundation, the RBF is required by law to spend 5 percent of endowment each year for charitable purposes. This year, it will spend more. If the foundation's trustees want the RBF to live forever--and they do--the endowment needs to generate more than 5 percent a year in returns. That's no small challenge, given that global GDP rose by just 2.3 percent last year and is expected to grow by 2.7 percent this year.Last year, the RBF awarded 297 grants totaling $28.9m, with an average grant size of about $97,000. It will spend more this year, largely because progress in its three biggest program areas - democratic practice, peacebuilding and sustainable development - is threatened by the Trump administration. “All three seem oddly in the crosshairs of a lot of the policies this administration says it wants to pursue,” Heintz says. The RBF has also created a $1.5 million "urgent opportunities" fund that will consider ideas from anyone on its staff; a small grant went to the organizers of the March for Science held last month in Washington.The RBF's grant-making could be more focused. It has small programs in southern China, the western Balkans, arts and culture and a category called "other," all of which require staff and reflect Rockefeller family interests. About 69 percent of its grants provide support for specific projects, as opposed to general operating support. And about 70 percent are one-year grants, which require staff to review and keep nonprofits coming back as supplicants. By making fewer, bigger and longer-term grants, the RBF could arguably have more impact and build deeper relationships with nonprofits. 

Immortality

The bigger question hanging over legacy foundations like the Rockefeller Brothers Fund is, why go on forever? This is a timely question for two reasons. First, the Trump administration differs from all that have come before, and not in a good way; it poses unprecedented threats to liberal democracy and to the environment, which are causes dear to the RBF. Second, billions of dollars of new money are flowing into philanthropy from technology, Wall Street and the Giving Pledge.

“We had a good, serious discussion of perpetuity about 10 years ago,” Heintz told me. The current generation of trustees, he said, decided that the RBF should be managed in a way that preserves the endowment for the long term.

Heintz explained: “We may think the problems today are really, really urgent, and they are. But we can't anticipate the problems of the future. It will be important to have philanthropic capital available.”

Another factor, he acknowledged, is that desire of the Rockefeller family to sustain its impressive legacy. “Philanthropy is the glue that keeps the family together as a family,” he said.  About half of the RBF's 17 trustees are descendants of John D. Rockefeller. The board chair is Valerie Rockefeller Wayne, a special education teacher and the daughter of former Sen. Jay Rockefeller and Sharon Percy Rockefeller, the president and CEO of WETA, Washington, D.C.’s public TV and radio outlets, since 1989.

Questions around perpetuity are admittedly complicated. It's hard to weigh the interests of people who are alive today against those of future generations. And it's impossible to know whether those future generations would be better served by current spending or saving. But, if climate change truly poses an existential threat to human life on earth, shouldn't foundations respond with more urgency?

There's also something, well, a little unnerving, not to mention undemocratic, about entrusting $840m in wealth to a group of people who, however thoughtful or well-intentioned, achieved their philanthropic power by being born into the right family. Perhaps it's time for the RBF to reconsider a spend down. All good things, it's said, must come to an end.

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*The RBF is one of a number of Rockefeller-funded philanthropies, including the Rockefeller Foundation, which is much bigger, and the Rockefeller Family Fund, the David Rockefeller Fund, Rockefeller Philanthropy Advisors, Winrock International and the Winthrop Rockefeller Foundation, all of which are smaller. Rockefellers have also been vice president (Nelson), and governors of New York (Nelson), Arkansas (Winthrop) and West Virginia (Jay), a U.S. Senator (Jay) and president of the Chase Manhattan Bank (David).