Qiana Thomason, President and CEO, Health Forward Foundation
Christie Zarkovich, Chief Administrative, Financial, and Investment Officer, Health Forward Foundation
Interviewer: Miranda Wesley, Grantmakers In Health
In 2020, none of the Health Forward Foundation’s assets were managed by Black, Latina, or Latino managers. Struck by that stark reality, Health Forward began the process of diversifying the asset managers in its investment portfolio as part of a larger strategy to align the Foundation’s capital with its purpose. The first step in this alignment process was to assess the board’s understanding of the opportunity and facilitate board learning on the topic. In 2021, initial investments occurred with fund managers of color. By 2022, 34 percent—or $332 million—of its invested assets were committed or under management by Black, Latina, or Latino investment managers. Its goal for 2024 is to expand that even further by reaching at least 45 percent of assets committed.
Grantmakers In Health’s Miranda Wesley spoke with Health Forward Foundation’s President and CEO Qiana Thomason and Chief Administrative, Financial, and Investment Officer Christie Zarkovich about the Foundation’s successful diversification of its asset managers and how other funders might do the same. This interview has been edited for length and clarity.
Why is the role of diversity in asset managers critical for Health Forward Foundation?
Qiana Thomason: It takes the full toolkit of our resources to achieve the impact we seek and our purpose. It certainly includes how we steward our assets. We employ three levers of change at Health Forward: leadership, advocacy, and resources. These three levers are aimed at our purpose—to build and support inclusive, powerful, and healthy communities characterized by racial equity and economically just systems.
Accordingly, knowing that our aim was to evolve our assets to reflect our purpose, we began discussions with our board in 2020 about this notion of diversifying our assets under management with fund managers of color. We consumed and discussed literature from other foundations and a few landmark studies which exposed bias and did a lot of myth busting around the notion of performance with fund managers of color. We talked about the narratives, the myths, and the realities. Our discussions were centered on [advancing] racial equity—not just diversity, but racial equity—[through] fund managers. It took a lot of strategic education and dynamic deliberation with our board, specifically our finance and investment committee, to position ourselves with readiness to act which occurred in late 2021. The other component was the understanding that to make the changes we hoped for, internal expertise was needed—both from a technical and strategic perspective—to guide us, expand our networks, and apply industry insights to what our opportunities were. That led us to Christie.
Christie Zarkovich: I want to emphasize that what is fundamental to our efforts is the evolution of the Foundation’s belief that our investment resources are just as much a part of our work as our grants and policy efforts. This is different than our previous orientation which was investment assets are intended to fund the work but were not considered to be a part of advancing our purpose. To be clear, our investment assets maintain a primary objective of being a funding source for all our work and have an investment objective of growing over the long term at a rate of return that supports our grants distribution. What is different now is that it is not the only objective.
The education and discussion about what it means to realign the investment assets with the purpose of the Foundation was critical in what we have accomplished over the past year and a half. Without this strong alignment and clear mandate, we would not have been able to transition the assets as quickly, thoughtfully, and prudently as we have.
One of the key differences in how Health Forward was able to find this alignment is how we discuss our investment assets. In my experience, many foundations begin the conversation about mission alignment in terms of deficit framing, believing alignment is only possible by excluding investment options rather than viewing the assets as a valuable resource that can be deployed in a broad range of ways to advance an organization’s mission. Framing the initial conversation as ‘what will we have to give up’ makes it more difficult to explore avenues where there may be natural alignment between the mission of an organization and its investment assets—and then discussing what would need to change about the current investment portfolio to achieve alignment.
For Health Forward, the discussion was ‘how do we use our assets to advance the objectives we are working on in all other aspects of our work (e.g. racial and ethnic representation) in our largest financial resource’? By framing the conversation as a part of the work, the questions of generating returns and achieving other objectives were never structured as in conflict with each other. Our portfolio maintains the same return objectives it has had since inception because that is required to advance our purpose, and we believe we can achieve other objectives.
Another critical element of viewing our investment assets as a part of the work was resourcing the organization as we resource all other functions. Health Forward believes if we want these assets to advance our specific purpose, we need internal expertise just as we do for our grantmaking and policy work. When assets are used as only a funding source, you don’t need the same resources, and assets can usually be managed externally or internally with fairly common risk and return guidelines. Our board recognized that without internal expertise focused explicitly on this mandate, it would be very difficult to achieve, in the exact same way that developing a policy agenda requires expertise focused on our unique objectives. It is a meaningful change in the way many foundations view resourcing their investment programs, where the more common focus is the net expense of managing the assets, similar to how you would assess any vendor or service that is needed to support the work rather than advancing the mission.
Qiana Thomason: Even if you have all the technical [expertise] in the world, which Christie has brought, tied to the strong strategic skill set and network, [you need] CEO leadership [and] championship. So as CEO, I championed it with the board. We also had and have championship in the Finance and Investment Committee Chair(s). It’s a trifecta of leadership that made this possible because we believed it could and should happen. You first must believe that it’s possible and that takes leadership.
Christie Zarkovich: Qiana’s conviction that it is a part of our mission to leverage all the Foundation’s resources to advance our purpose is fundamental to our efforts. But this goes beyond conviction. She ensured that leadership of the board, particularly the Finance and Investment Committee, included the technical expertise fellow board members could learn from as we made changes to our objectives and structure. If you are not in the investment field, it is difficult to completely understand the more detailed implications of changing investment policy, and there is a lot of rhetoric that what we are trying to achieve is not possible without hurting returns. Having board members in the investment field who can assess the actual implications of investing in any specific asset manager and approve the asset allocation, which for most institutional investment portfolios determines at least 80 percent of the return of the assets, provides additional comfort to board members who do not have investment expertise.
How did Health Forward significantly increase their assets under Black-, Latina-, and Latino- owned management? What did you need to do so?
Qiana Thomason: We first revisited our investment policy statement and grappled [with] things that were there—and not there—and made strides to align our with our purpose, specifically around racial equity and economically just systems.
We talked about identities that are systemically excluded or underrepresented in investment management. It took courage to name and center identities that are underrepresented in the investment and finance industries, which means we also grappled with understanding that diversity—from an industry perspective—includes white women and all people of color, as it should, that’s very important. We wanted to also center our purpose on the predominant demographic we support in our region which is Black and Latina/o people.
Christie Zarkovich: Our representation objectives go back to our initial framing of the question about how we could deploy our investment assets as a part of the work. Our representation objectives in the portfolio are a direct reflection of our focus on racial equity and our communities of focus in Kansas City. We fully acknowledge that in the investment industry, women remain meaningfully underrepresented and the underrepresentation by gender is not materially different than when measured by race and ethnicity. We fully support more comprehensive efforts to increase diversity, but our specific objective to have 45 percent of our investment assets managed by firms that are majority owned or controlled by Black, Latino, and Latina persons by the end of 2024 is tied directly to our work. Over the last year and a half, we have made meaningful progress toward that goal. Currently, over 35 percent of our committed and deployed assets meet our representation objective.
This progress requires us to have a tailored and deliberate sourcing effort. There are some analogies to how we are also evolving our grantmaking practices. I am focused on proactive outreach and active discussions with existing managers and other investors with similar objectives to identify firms that may not have extensive marketing resources or are large enough to be covered by many of the advisors. But our work on advancing racial equity extends beyond our representation objective. Every one of our investments is a part of the work, and we discuss this conviction with all our managers. We understand their efforts to advance racial and ethnic diversity within their organizations and request full transparency of demographics and their diversity policies and efforts so that we can hold ourselves accountable to partnering with organizations that are advancing our mission.
Another aspect of our view that our investment assets are a part of the work is the level of engagement of our CEO with our investment managers. Qiana has met the majority of our new investment managers, which further demonstrates her belief that we can make our investment assets a part of our work. As we have increased the representation of assets managed by people of color, we have increased our underlying investments in supporting the same types of communities and people we seek to serve in our policy and grantmaking. Qiana is able to engage with our managers on a range of topics to include anti-racism, health policy, and workers’ rights which have impact on the success and value of the companies in which they are investing. While we are in the early stages, this type of engagement is rare as a part of an investment program, and I believe Qiana’s leadership will create even more opportunities for us to more effectively advance our purpose through new partnership opportunities we were previously unable to envision.
Qiana Thomason: I also want to acknowledge other board policy changes to make this happen. The board chose, per my request, to evolve their role in stewarding investments. Prior to Christie coming on, the board made all of our investment decisions. It was a quasi-OCIO (Outsourced Chief Investment Officer) model where our investment advisor packaged all recommendations to our board, and our board approved it with prudence. [However], there was not a lot of deep expertise at the full committee level in investments and especially sourcing. In Christie’s recruitment and preparing the organization to receive her leadership, the committee and I discussed how roles may need to shift to apply our purpose to our assets. They ultimately retained authority over our investment policy statemen, asset allocation, and risk tolerance, and transitioned authority on fund manager decisions to staff (Christie), in concert with our investment advisor.
Christie Zarkovich: I think it’s been virtuous because our managers see themselves as partners with Health Forward and as a part of advancing our purpose which often strongly aligns with their world views.
What are the benefits and strengths of diversifying assets under management among Black, Latina, and Latino fund managers in your community?
Qiana Thomason: Living out our purpose, demonstrating it through our actions, which, as a foundation, should not just include our grantmaking. Again, our whole toolkit includes all our assets. When you think about the massive amounts of wealth that philanthropy stewards, we cannot credibly live out our purpose without turning significant attention to our assets. That’s a lot of money, and grantmaking just won’t cut it to actualize economically just systems. What better way to help create a new pipeline for majority-owned fund managers that are Black, Latina, or Latino, than to help support greater inclusion of them as fund managers—which helps that pipeline develop. [If] they don’t have the opportunities, they’ll never get to ownership. We see this action as contributing to systems change in the investment industry, and not just in the social sector.
Christie Zarkovich: In addition to the impact of our capital in enhancing diversity in the asset manager field is some of the meaningful impacts associated with how these managers deploy our capital and that work contributes to racial equity and economically just systems. A few of the most compelling examples include our investment in Illumen Capital that has developed a bias reduction program for its fund managers to help managers make better decisions. They have also commissioned critical research about the impacts of bias in investment management to demonstrate that reducing bias enhances returns. Their work and research is an important contribution to advancing the field of investment management and addressing many of the myths associated with investing in underrepresented managers.
Within our Venture Capital portfolio, we see a meaningful change in the diversity of entrepreneurs and business in which our capital is invested. Our partner, Impact America, invests in high growth opportunities that are often overlooked by other investment managers and in doing so benefit much more diverse populations of people and professions to include microbusinesses, hairstylists, and home healthcare workers.
Earlier this year we invested with Lafayette Square, who believes that improving the job quality and lives of employees allows the companies in which they invest to profit from a more engaged and productive workforce. In addition to their investment capital, they offer services designed to improve employee well-being, productivity, and workforce retention. These are all virtuous. They not only help the populations we want to help, but they all contribute to a more robust, healthy economic system.
Is there anything else that funders should know about your work on making mission-driven investments? What has been the biggest challenge?
Qiana Thomason: For foundations who are interested [and] want to take this on, look at what is required in terms of partnership with governance and their role in this process. [This] includes examining who is in governance. That can’t be washed over, really taking a look at internal and external talent, what partners are needed to chart this path, and then a leadership belief that this can happen. And I think absent those three things, it can’t be done. But with the alignment in those areas, it’s certainly possible. And we’re having fun—we’re having fun doing it.
Christie Zarkovich: Health Forward’s choice to define our representation goals narrowly and in line with our work is not common in the field, so finding advisor partners that can assist with our specific objectives is challenging. Many advisors have bolstered their capabilities to be responsive to the trend of foundations looking to better align their investment assets with their missions; however, the range of capabilities is still quite disparate. I see this as an agency issue that could benefit from a more robust dialogue. There is some criticism that the investment advisor community is not doing enough to advance investments that align with their clients’ missions. However, this also reflects the reality that a majority of foundations view their investment assets only as funding sources and/or are unable or unwilling to invest in the resources needed to make the investment assets a part of their work. Finding compelling mission-aligned investment ideas is no different than any investment search and diligence process that seeks unique attributes—whether that is a differentiated source of return, a specific niche of capital markets, or in our case strategies that advance representation. There are myriad investment opportunities to meet a range of objectives, but you have to dedicate investment professionals’ time to achieving an objective.
Health Forward believes systems change is required to advancing racial equity and economically just systems, which means we have to change the system we have historically used to manage our investment assets.
Qiana Thomason: Some of the problem is so many people and investment advisory firms just don’t expand their own personal networks. They don’t have the personal networks that include Black, Latina, or Latino fund managers. There needs to be some bubble bursting in spheres of personal and professional influence. To Christie’s point, there are some fundamental misalignments, and I think that’s one of the root causes.