An Article By Peter L. Brill, M.D. “Impact Investing—Tom Parker: A Key Player in Town,” Montecito Journal vol. 22/issue 20 (19-26 May 2016): 49.
Many people ask: Is impact investing practical? Is it really possible to do social good and make money at the same time? Well, we have a perfect example of how well it works right here in Santa Barbara. To answer these questions, we talked to Tom Parker.
But first, who is Tom Parker? A thoughtful man with a quiet intensity and a good sense of humor. He is also chairman of the board for the Hutton Companies and president of the Hutton Parker Foundation, one of the largest private foundations in Santa Barbara. He is a third-generation Santa Barbara native and has won numerous awards, including Philanthropist of the Year and Santa Barbara News-Press Lifetime achievement Award among many others.
You can get a sense of Tom, who worked in the Hutton companies at all levels, from the things he says. “I have a belief—clear to me early on… my father worked every day of his life. Hard work and knowledge drove me. Couldn't expect other people to make money for me. The money I made came from hard work.”
Q. What does hard work have to do with the success of foundations, and where should a foundation focus its competency?
A. In a private foundation, you do the work of giving money away. When I came to the foundation, the belief was that the principal or corpus in the foundation should not be used to help with its mission. The expectation was to give the corpus to Wall Street to manage. I never believed that Wall Street was going to perform that well. If I wasn't bringing value, might as well go to Las Vegas and gamble. This isn't how I was successful, so why should I be passive here? I decided I was going to do it differently.
I decided I was going to use the corpus to lend directly to nonprofits. I could charge them a lower rate for the loans than banks. The foundation benefits by making the income from the interest and the nonprofits benefit because the lower interest rate lets them keep more of their money for other purposes.
The same idea also works for real estate. If I use the corpus to buy buildings and rent to nonprofits at reduced rates, I created value to the foundation in terms of rent and appreciation on the property, and the community benefits because the non-profits pay a smaller and stable rent.
Doing Good By Doing Good
Normally, foundations use 5% of their money for grants. Tom uses 5% plus 50-60% of his corpus So, he is able to use 55-65% of his assets to do social good. By investing directly to help nonprofits, he 1) creates synergy because they occupy contiguous space; 2) lowers rent, and 3) creates stability by keeping the rents stable.
Through his real estate efforts, he has been able to reduce the rents of nonprofits $1.5 to $2 million per year. That can be equated to making a grant in that amount.
Tom believes that to come up with these ideas, it requires breaking out of the mode where “someone is going to make money for me.” To be successful using the corpus of foundations and trust funds, their owners and managers have to want to be open and want to use their energy and assets. They have to of belong that is simple and comfortable.
Tom says most people in foundations are trained as a foundation sector to buy stocks and bonds with their corpus. The stockbrokers and private equity managers who sit on the investment committees advocate it.
So, how well does this impact investing work to protect or enhance its assets? Three local foundations in Santa Barbara, including the Hutton Parker Foundation, all had about the same level of assets in 2000. Now, 15 years later, Hutton has doubled its assets while the other two have shrunk to 50% and 66% of their former value.
And according to Tom, the IRS is on the side of this movement toward employing the corpus. They have done everything to convince the foundation members to do this and made it clear that is they invest for a charitable purpose, investment committee members’ concern for expenditure responsibility is reduced.
Tom has many other areas where he believes impact investing could be utilized, such as: community banks that make money from guaranteed loans while the foundation owns stock in the bank; opportunities in solar energy, and donor-advised funds that can participate since they circumvent the investment committee of the foundation.
When asked if what he did could be called “impact investing,” he answers in the affirmative: “Absolutely I would,” he says.
Impact investing has tremendous potential to help communities. Our own explorations at the Sustainable Change Alliance have doing numbers other companies that bring social good and profit to communities.
Source: Montecito Journal