Sustainable Philanthropy Case Study - MacArthur

Sustainable Philanthropy Case Study

Name: MacArthur Foundation

Type: Private Charitable Foundation

Size: $7.2 bn

Year of Establishment: 1970

Description:

The John D. and Catherine T. MacArthur Foundation is the 12th largest private foundation in the US and is based in Chicago with offices in India, Mexico, and Nigeria. The Foundation currently makes grants and investments towards solutions for many social challenges including over-incarceration, global climate change, nuclear risk, and increasing financial capital for the social sector. The Foundation has two “enduring commitments”—Chicago, to support the city’s civic, cultural, and community infrastructure, and Journalism & Media, to strengthen American democracy by informing, engaging, and activating Americans through investments in independent journalism and media. The Foundation also makes awards to creative individuals through the MacArthur Fellows program, provides institutional support through the MacArthur Award for Creative and Effective Institutions, and invests in solutions for critical problems through 100&Change.

The Foundation’s institutional goal is to understand the impact of all of its work—it constantly evaluates and identifies milestones to monitor and track progress and impact. All Big Bets and Enduring Commitments have mechanisms in place for oversight, governance, management, and measurement of progress and impact. The core team within the Foundation provides leadership, develops strategy, and ensures effective management, implementation, and evaluation of all big bets and enduring commitments. There also is a set of internal advisors as well as external advisors with relevant background, expertise, or perspective that critically review all Foundation activities and provide guidance.

History:

John D. MacArthur was the sole owner of the largest privately held insurance company—Bankers Life and Casualty, and also had large real estate holdings in Florida, New York City, and Chicago. In October of 1970, John D. MacArthur and his wife, Catherine T. MacArthur, established the John D. and Catherine T. MacArthur Foundation with the intention of putting their money to good use long after they were gone. The Foundation’s charitable activities were left to the discretion of the first board which included Catherine MacArthur, their son Roderick MacArthur, friend and attorney William T. Kirby, radio commentator Paul Harvey, and NY business associate Louis Feil. Upon John MacArthur’s death in January 1978, the Foundation assumed 92% of his assets, made up of most of the family’s real estate holdings and all of the stock of Bankers, in total estimated to be around $1 billion. The Foundation made its first grants in 1978 of $50,000 each to Amnesty International and the California League of Cities.

In the 1980s during its first decade, the Foundation began giving grants towards the MacArthur Fellows, provided support for public radio, and invested in peace and security, mental health, and the environment. During the 1990s, the Foundation saw rapid expansion and experimentation as assets grew with the liquidation of MacArthur’s real estate holdings. During this time, the Foundation took a leadership role in Chicago school reform, began support for neighborhood development efforts in Chicago, and launched the Population Program, with field offices in Mexico, Nigeria, Brazil, and India.

During the 2000s under Jonathan Fanton’s leadership, the Foundation clearly established its values, mission, and areas of work. The Foundation changed its grant-making policy to emphasize fewer but larger grants made over longer periods of time. From 2009 to 2014, Robert Gallucci changed the culture by embedding assessment practices in all programs to analyze impact and also increased the freedom of professional staff. The Foundation is now led by Julia Stasch, who had joined the Foundation in 2001 as Vice President for US Programs and who was previously the Commissioner of the Department of Housing and Chief of Staff for the City of Chicago. The Foundation currently has about $7.2 billion in assets and annual grants of approximately $288 million.

Family Involvement:

John D. MacArthur and his wife Catherine T. MacArthur both served on the original board of the Foundation. The Board was rounded out with their son, John Roderick “Rod” MacArthur, a friend and radio commentator Paul Harvey, a business associate Louis Feil, an attorney friend William T. Kirby, and the Chairman and Vice President of Banker’s Life and Casualty Co Paul D. Doolen.

Rod MacArthur, the son of John D. MacArthur, worked for his father’s insurance company after serving in WWII, but eventually left due to a family conflict. With some financial support from his father, he started Bradford Exchange, a successful multimillion dollar company that brokered purchases and sales of collectible porcelains. However, in 1975, John D. MacArthur seized the company. Rod MacArthur, although he did regain control over his company, did not make up their differences until close to John D. MacArthur’s death, but Rod MacArthur continued to serve on the Foundation’s board throughout this time, eventually becoming director after his father’s death and serving until his death in 1984. Rod MacArthur did start his own foundation, the J. Roderick MacArthur Foundation, which operates at a much smaller scale than his father’s foundation.

Rod MacArthur’s son and John D. MacArthur’s grandson, John Roderick “Rick” MacArthur persuaded the Foundation to create and fund the Harper’s Magazine Foundation, which bought out the struggling Harper’s Magazine publication. Rick MacArthur serves as president and publisher of Harper’s Magazine but is not involved in any other capacity with the Foundation. Rick MacArthur, along with his two siblings, surgeon Solange D. MacArthur and film producer Gregoire C. MacArthur, are directors of their father’s foundation, but are not involved with their grandfather’s foundation.

Mission:

The MacArthur Foundation’s mission is to support creative people, effective institutions, and influential networks building a more just, verdant, and peaceful world. The Foundation makes grants towards “Big Bets,” which are areas of profound concern that need transformative change and are made up of Climate Solutions, Criminal Justice, Impact Investments, Nuclear Challenges, and On Nigeria. The Foundation also has awards and special projects made up of 100&Change, MacArthur Fellows, and MacArthur Award for Creative & Effective Institutions. Finally, the Foundation has Enduring Commitments, made up of Chicago Commitment and Journalism & Media.

Regarding investments, the Foundation has two methods for the management of its assets in order to achieve strong risk-adjusted returns that fund operations and charitable activities. A large portion of the assets are maintained in an investment portfolio managed by a profession in-house team that selects and oversees outside managers. This segment’s mission is to earn a financial return sufficient to support grantmaking and operations for the foreseeable future. Approximately $500mm of the Foundation’s assets is allocated to an impact investment portfolio managed separately by another in-house investment team. This segment is dedicated to the support of the Foundation’s programs and philanthropic purposes while still earning a financial return.

Investment Program:

Investment Philosophy

The MacArthur Foundation invests in a variety of asset classes and maintains a diversified portfolio through investments in multi-investor pooled funds managed by outside investment managers that invest in underlying companies or securities. The manager selection details are described in more detail in the Manager Selection section. In addition to external managers, a small proportion of Foundation assets is invested in-house in an impact investments portfolio that invests in private and public companies that advance the Foundation’s philanthropic purposes.

Performance

The MacArthur Foundation has performed well over the past 18 years with 7.27% annualized returns. However, the performance of Yale was more outstanding in the same period.

Asset Allocation

The MacArthur Foundation was an early adapter of the Alternative Investments. By 2005, the portfolio has already allocated 40% of assets with the Alternative Investments. In 2010 or 2011, it seems that the Foundation made a decision to shift their focus from Alternative Investments to Public Equity.

Manager Selection

The Foundation sources external managers through references, discussions with other managers, research and investigation, and direct solicitations. The MacArthur Foundation is one of a few foundations which publish their methodology to source managers on their website (https://www.macfound.org/pages/how-foundation-sources-investmen/). The Foundation looks for managers that generate consistent alpha. Within the public markets, the Foundation desires hedge funds rather than traditional “long-only” funds. The Foundation also looks to see if assets under management correspond with a manager’s strategy.

When evaluating a prospective manager, the Foundation considers assets under management, the fit within its overall strategic approach, past performance, extent of drawdowns in different market conditions, transparency, and manager’s financial, accounting, risk, ethics, and other policies including ESG factors. The Foundation also performs a statistical analysis of factors that it deems important for strong risk adjusted returns (including information ratio, alpha, tracking error, and volatility).