TY - JOUR

T1 - Foundation Investment Funds for Grant-Making Foundations in Germany

T2 - Do They Facilitate Sustainable Investing?

AU - Wiener, Berenike

AU - Schnurbein, Georg von

N1 - Publisher Copyright: © The Author(s) 2023.

PY - 2023/10/1

Y1 - 2023/10/1

N2 - Grant-making foundations commonly use financial returns on investment in support of a public purpose. Recently, more attention has been given in academic research to the role of foundations as sustainable investors. According to the concept of socially responsible investing (SRI), foundations should integrate their social purposes into their investment strategies. However, foundations are also required to comply with national legal frameworks. Our research interest lies in those investment funds that are specifically developed for foundations in Germany. In this study, we answer two research questions: First, what are the characteristics of the market for foundation investment funds in Germany? Second, to what extent are foundation investment funds useful for foundations pursuing an SRI strategy? We build on a full sample comprising all 52 German foundation investment funds that are currently available and then use data from MSCI to apply a sustainability rating for these funds. With these data, we evaluate the financial performance of foundation investment funds in relation to their sustainability ratings. Multidimensional Scaling (MDS) was used to reduce complexity in the dataset and detect similarities among a set of objects. Our findings differentiate between two distinct clusters of foundation investment funds. The first “discrete” cluster represents the majority of funds, and these funds are generally smaller with lower performance and lower levels of SRI conformity. The funds in the second “attached” cluster are generally larger, more diversified, and have higher performance. Finally, we call for further research offer implications for both fund managers and foundation asset managers.

AB - Grant-making foundations commonly use financial returns on investment in support of a public purpose. Recently, more attention has been given in academic research to the role of foundations as sustainable investors. According to the concept of socially responsible investing (SRI), foundations should integrate their social purposes into their investment strategies. However, foundations are also required to comply with national legal frameworks. Our research interest lies in those investment funds that are specifically developed for foundations in Germany. In this study, we answer two research questions: First, what are the characteristics of the market for foundation investment funds in Germany? Second, to what extent are foundation investment funds useful for foundations pursuing an SRI strategy? We build on a full sample comprising all 52 German foundation investment funds that are currently available and then use data from MSCI to apply a sustainability rating for these funds. With these data, we evaluate the financial performance of foundation investment funds in relation to their sustainability ratings. Multidimensional Scaling (MDS) was used to reduce complexity in the dataset and detect similarities among a set of objects. Our findings differentiate between two distinct clusters of foundation investment funds. The first “discrete” cluster represents the majority of funds, and these funds are generally smaller with lower performance and lower levels of SRI conformity. The funds in the second “attached” cluster are generally larger, more diversified, and have higher performance. Finally, we call for further research offer implications for both fund managers and foundation asset managers.

KW - foundations

KW - investment funds

KW - philanthropy

KW - socially responsible investing

KW - SRI

UR - http://www.scopus.com/inward/record.url?scp=85180640215&partnerID=8YFLogxK

U2 - 10.1177/21582440231218905

DO - 10.1177/21582440231218905

M3 - Journal articles

AN - SCOPUS:85180640215

VL - 13

JO - SAGE Open

JF - SAGE Open

SN - 2158-2440

IS - 4

ER -