High Risk, High Reward: Bold Investments Driving Change
On April 15, 2025, Don Chen, president of the Surdna Foundation, spoke at the Global Impact Investing Network‘s West Coast Impact Forum and Investor Training on Surdna’s intentional decision to apply our social and racial justice values to our investing portfolio, the subsequent opportunities and outcomes, and the shifting perspectives of DEI in philanthropy.
Good morning. I’m Don Chen, president of the Surdna Foundation in New York. We’re a private family foundation focused on racial and social justice in environmental sustainability, economic inclusion, arts and culture, and better outcomes for young people. We have a billion-dollar endowment. And the story I’m going to share is about impact investing; diversity, equity, and inclusion; and freedom.
I’m going to take you back to 2014. By then, we were nearly a century old, and for decades, we had made hundreds of grants to nonprofits out of the grantmaking side of the house. Meanwhile, on the finance and operations side of the house, we were hiring hundreds of fund managers to invest our money so that we could generate the income to make those grants.
This is the norm in most endowed foundations, but by 2014, our board members and staff started to ask each other whether that separation still made sense. They also wondered:
“What would it look like to apply Surdna’s values and goals to its investment practices?”
So, they decided to host a board retreat to explore that question. It was a really big deal. Board members came in hot. There was a faction pushing for fossil fuel divestment. Some were excited about negative screens. Others were curious about active ownership strategies. Meanwhile, our vice president for Finance & Investing barely slept the night before because he was terrified of what the board might do.
Thankfully, we had a brand-new board member, Tracy Palandjian, a highly experienced investor who co-founded the nonprofit organization Social Finance. At a certain point during the retreat, she said, “You know what? You guys don’t adequately appreciate how amazing it is to have developed an alpha-generating endowment. So, whatever we do, we have to move smartly and cautiously.” In other words, be principled and strategic, but don’t screw it up.
That was the big breakthrough, and it set the tone for Surdna’s journey to impact investing. The board discussed and agreed on basic principles and then did a deep dive to understand what was already in the portfolio. They talked about what it would look like if our endowment were truly aligned with our values and mission. They also assessed different impact investing tools.
By 2017, Surdna had landed all the planes and announced its decision, which was a $100 million commitment to impact investing, which at the time was about 10 percent of our endowment. Our first investments were strongly aligned with our programs and included loans for women and minority-owned contracting businesses, investments in funds specializing in renewable energy, and backing for companies pursuing positive social, environmental, and economic outcomes.
Surdna also decided to provide grant dollars to support the impact investing field because it was still relatively nascent. So, our grants to organizations like the GIIN and other key partners supported research, the development of innovative new tools, rigorous standards for social impact, and opportunities for networking and learning. We refer to this area of grantmaking as “funding the rails that we ride on,” and we continue to do this today.
It was an exciting start. But foundations usually evolve their priorities over time, and so has Surdna. In recent years, we’ve tightened our social justice goals to be more focused on advancing racial equity and justice. And with that evolution, we’ve taken the time to ask ourselves, “What would it look like to incorporate racial justice considerations into our investing?”
As we explored this question, we learned some surprising things.
Most notably, we learned that less than 2 percent of roughly $80 trillion in invested assets are managed by firms owned by women or people of color. Whenever I read that figure, I always ask myself, “Is that accurate? That can’t be right.” But multiple studies have corroborated this finding. And we spoke with peers. Many investors said that they simply couldn’t find talented women and people of color to work with as fund managers.
We thought to ourselves, “Really?” Maybe we’re just not looking hard enough. Maybe people of color and women are overlooked in the industry and aren’t given enough opportunities to succeed. Or maybe they don’t tend to have as many friends and family ready to invest substantial sums when they start out as first-time fund managers.
We had so many questions. So, we looked at the evidence. What we found was powerful.
We learned about research suggesting why more women and people of color aren’t hired as much in the sector, including studies conducted by Darren Dodson with Stanford University on implicit bias in the global banking industry.
And we learned that having racial and gender diversity does not negatively affect performance. A recent example was a major study published by the Knight Foundation, which found that only 1.4 percent of total assets were being managed by women- and people-of-color-owned firms. Very importantly, the data showed that these firms’ financial performance matched the performance of their less diverse peers.
We also learned about research showing that first-time funds often outperform more established funds. Why? Because those managers tend to be hungrier to perform.
Meanwhile, we also found a mountain of evidence—mainly from the private sector, the military, and other sectors about the value of diversity, equity, and inclusion efforts. By seeking out qualified candidates who might otherwise be overlooked, DEI initiatives not only improve the quality of new hires, but also help teams avoid blind spots and groupthink, while also enabling them to think more creatively about tasks and challenges. Fostering a sense of inclusion and treating people fairly and equitably in workplaces tends to boost morale and improve performance.
So, based on everything we learned, we formed a hypothesis. Maybe this is an opportunity to make money. Maybe there are loads of incredibly talented investors who have everything it takes to be successful but have been overlooked and haven’t been given a chance to shine.
As my old friend Leila Janah used to say, “Talent is equally distributed, but opportunity is not.” We decided to put that to the test.
We thought that by doing a better job finding and providing opportunity to talented but overlooked investors, we could reap both financial and social benefits. We worked with our external CIO team at Cambridge Associates to start looking for that overlooked talent. And we found plenty. Within a few years, we raised our commitments to diverse-owned firms from under 15 percent of our endowment to 36 percent today. We also supported “fund ones”—which is pretty unusual for large institutional investors. To date, we’ve supported over 25 of them.
These managers are proving out our thesis that talent is overlooked in capital markets. Take, for example, firms like Seae Ventures whose two managing partners have over two decades each, investing and developing business models in healthcare. They bring that experience and cultural competency to sustainably investing in health equity. Or firms like the Blackstar Stability Fund, whose managing principal brought over 20 years and $5 billion worth of real estate investing experience to his inaugural fund, a fund that’s creatively building a more equitable housing market for low-income Americans.
Sure enough, their financial performance has been excellent. In fact, Surdna’s impact portfolio now equals or outperforms in every asset class in our endowment. Our MRI portfolio—our mission-related investments has returned 11.4 percent annually in the ten years since its inception. And it has grown, totaling roughly $220 million, or roughly a fifth of our endowment.
So, what have we learned, and what will we do next?
We learned that we needed more tools. Tools to more concretely understand the relationship between impact investing and social impact on the ground. Tools to better assess the relationship between the diversity of people and backgrounds and financial performance. And more partnerships to develop and deploy those tools. A great example of that is the Social and Environmental Equity Framework, which was developed by Chavon Sutton and her team at Cambridge Associates using Surdna’s data and experience to pilot map out the interconnectedness between investing and various economic, social, and environmental factors that benefit people in their everyday lives.
Despite all that evidence and the progress we’ve seen, we’re now seeing these ideas being attacked. Diversity, equity, and inclusion—or DEI initiatives—are under attack. Considering environmental, social, and governance factors—or ESG—to evaluate values alignment and systemic risk is also under attack. And these efforts are driving some companies and investors to change their language and even change their commitments, even though we know that these practices are financially and socially beneficial. Some have stopped using those acronyms but continue to do the work, which is called “green hushing or DEI hushing.”
My message to you is: Let’s not give in to these baseless attacks.
We know what generates excellent financial returns, we know that considering external factors helps us manage systemic risk, and we know how to make socially beneficial investments to foster a more just and sustainable world.
But most of all, as Americans, we all enjoy freedoms that have long been a model for the world. For the Surdna Foundation, as a privately endowed family foundation, that means we have the freedom to make decisions about investments and grants. We have the freedom to ensure that our dollars deliver double or even triple bottom lines. And we have the freedom to reap the benefits, make mistakes, and learn along the way.
These are fundamental rights that we cherish, and we should all be prepared to defend them so that—and I’m going to quote the GIIN’s mission statement—so that “investors deploy capital both for financial gains and positive impact for all people and the planet.”