If you counted every dollar in every U.S. foundation’s endowment, the total would come to somewhere north of $1 trillion. Countless nonprofits spend untold hours trying to influence where foundations put that money, particularly the roughly 5% slice that goes out the door every year in grants.
But it turns out the nonprofit sector may have an even larger — if much less flexible — bucket of funds under its influence. Nonprofit retirement accounts — worker-held 403(b) plans, the nonprofit equivalent of 401(k)s — total an estimated $1.26 trillion.
A new organization, Just Futures, wants to put at least some of those savings to work for social justice. Formally launched this year, the platform seeks to give nonprofit employees the ability to invest their retirement savings in line with the values that brought them to the sector in the first place.
Later this year, the group plans to soft launch its first offering, a curated account of ESG funds. (That’s Wall Street shorthand for funds that, at least in theory, take into account environmental, social and governance factors when making investment decisions.) But that is just the first step of a much more expansive vision. Just Futures wants to develop boundary-pushing investment vehicles that allow more direct investment in social change. It’s proven an attractive goal. The outfit’s c3 arm has raised nearly $1 million in grants, while its business branch has mustered $1.5 million in investment.
It will be a new player in a tiny space. Even with interest in ESG booming, less than 3% of all 401(k) plans offer funds that include such considerations. A report released today by Just Futures, “Building a Social Justice Investment Chain,” found less than a dozen such social justice investment funds — those that pool resources to invest in social justice groups — and their assets total just $75 million.
If the group can capture a tiny fraction of the $1.26 trillion in nonprofit retirement accounts, it could be transformative. Moving just 0.07% of the nonprofit sector’s retirement savings onto its platform would represent more assets than all the funds profiled in the group’s new report currently manage.
Any such shift is a tall challenge. For starters, those accounts are spread across thousands of nonprofits, many with little bandwidth to change their systems. Above all, these options must not only make social change, but simultaneously safeguard and grow the savings that workers are relying on to keep them fed and sheltered later in life. It’s an imperative that the founders, both nonprofit veterans, understand from the inside.
The effort also comes amid what Bloomberg News calls a “growing consensus” that the ESG industry is guilty of widespread greenwashing. Last month, an effort to shore up the grab bag of international standards that factor into such ratings came under fire for failing to address core concerns, while earlier this week, new EU rules came into effect that essentially penalize greenwashing. The platform aims to offer a thoroughly vetted alternative that will use the best of what that system can offer — and ultimately go beyond it.
Social justice by day, Charles Schwab by night?
Fresh out of Harvard Law School in 2004, Steven Choi’s first job as a nonprofit lawyer paid him just $37,500 and did not include retirement benefits. Over the next decade, he would go on to work at a series of grassroots organizations, eventually running a couple of them. It was a first-hand lesson in nonprofit retirement benefits and options (or the lack thereof).
“From my day job doing organizing and being a community lawyer, the idea that I was doing wealth creation at night, working with Charles Schwab, it just felt very strange,” he told me. “It felt contrary to my values, and the work that I was doing.”
As an executive director, he was frustrated not just by the excessive fees and limited transparency, but also the lack of values-oriented options. His friend, Alex Saingchin, who had worked alongside him at his first job, had developed a similar concern for asset management. His career had taken him into philanthropic roles in impact investing, and he was frustrated that most foundations still focused their attention on their payout (the 5%), rather than the assets sitting in investments (the 95%). And both were passionate about shaking up a white-male-dominated industry.
It was over a pandemic WhatsApp exchange that the pair had their “eureka moment,” Choi said. They realized that a low-cost, easy-to-use platform could benefit workers while putting their savings toward a future they could believe in. Thus, the idea for Just Futures was born.
After fleshing out their vision, the duo raised $900,000 in grants to get the organization off the ground. A series of three webinars this year convinced them demand was even stronger than imagined. “Honestly, we expected 40 to 50 participants for each, but we got close to 1,200 registrants, and half of those people actually attended.” They also held a listening tour during which they heard from more than 200 organizations.
The pair is now working toward a soft launch later this year and a full launch in 2023. The organization has new staff to hire and orient, and with $1.5 million raised so far, they are working toward a goal of raising $4 million for their seed round. More than 100 groups have expressed interest, but the soft launch will focus on getting a few key clients online.
The phase one products will fall somewhat short of the vision, focusing on basics such as a lower-cost index fund with conventional ESG screens. But in the long term, the platform hopes to offer funds that include community engagement, prioritize racial and gender-diverse managers and emphasize proxy advocacy.
“We’ll give workers a choice, but to be totally frank, [the early options] are not going to be totally transformative,” Choi said. “This first phase is almost like an R&D phase. We’re going to figure out what works, we’re going to spend some time, dig in, and figure out exactly what our more values-driven options could be.”
Just Futures has both nonprofit and for-profit arms, one running on grants and the other on investments. Yet the latter is not your typical private company. The platform has pledged a 30% ownership stake to people-of-color-led movement organizations. The aim is that those groups will not just have a stake in this venture, but will eventually earn yearly dividends. The group is now working with potential partners to determine how, exactly, that will work, and what it will entail on both sides. But partly, that is already baked in.
“Your average, red-blooded venture capitalist will say, ‘Where’s my money? Why am I not getting my money?’’ Choi said. “We’re trying to introduce an innovative new model, where we have investors who are saying, ‘The money that I put in, eventually, we want that to go to [the grassroots groups].’”
A small startup takes on a big industry
The duo have a hefty challenge ahead of them, but they wouldn’t be the first fearless newcomers to challenge the status quo of the investment world and come out winners. Consider a similar story: two co-founders with graduate degrees. Neither had ever worked on Wall Street, yet they wanted to disrupt the highly regulated investment industry. To get their startup off the ground, they brought in close connections, including a girlfriend and a poker buddy.
How did it go? Well, today, the financial firm Betterment — you’ve probably seen the ads — manages some $33 billion in assets and has officially reached “unicorn” status, with a valuation of $1.3 billion.
Ian Fuller, a member of Just Futures’ investment committee, believes the tale echoes that of Choi and Saingchin — both have law degrees, no financial sector experience, and extensive (if more professional) networks they’ve tapped for advice.
“They’ve got a little bit of a mountain to climb on that, but I know it can be done,” said Fuller, who is managing director and co-founder of Westfuller Advisors, a financial advisory firm, and sits on the boards of several nonprofits. “A number of disruptors have come into the market without deep investment expertise.”
Aside from Fuller, the pair were mentored by experts like Rey Ramsey, the founder of an impact investment firm and longtime head of One Economy. Ramsey is currently president and CEO of the Nathan Cummings Foundation, another philanthropic funder of Just Futures, and a heavyweight in the impact investing world. Just Futures will also soon bring on a CEO with an extensive background in institutional finance, most recently building a financial technology platform that is working with dozens of nonprofits.
“They’re doing a great job of bringing in industry expertise, even at these early stages, and they recognize the need to continue building out that capacity,” said Fuller, whose previous experience includes a four-year term at Merrill Lynch.
Just Futures has staked out a vision that would challenge even the most experienced leadership group. They hope to create a product that will lower costs for nonprofits while providing more thoughtful investment options that are genuinely green and just. In short, offer more for less.
The team acknowledges the challenge, but says their spectrum of products will allow them to cover both customers wanting low-cost, Vanguard-like products and innovative, social justice options that will likely have higher costs. They say technology, too, will help make it work.
“Just Futures is really in this process of trying to figure it out,” said Fuller. “They’d be the first to admit they don’t have it all solved. I don’t believe anybody in the market has this fully solved. We’re operating in a capitalist framework. But I think it’s interesting to start asking these pointed questions with clarity and rigor.”
Why one foundation has backed the group
The San Francisco Foundation regularly hears from its grantees about the high costs of retirement plans, the heavy administrative burden, and the need for support, said Judith Bell, chief impact officer at San Francisco Foundation.
So when they were contacted by Just Futures’ co-founder, Alex Saingchin, they were eager to hear more. It helped that he was already well-known to SFF. He had served as a vice president at East Bay Community Foundation — “a sister organization,” said Bell — and spent a year as an SFF fellow.
“This seemed like a possibility to essentially get a two-fer,” said Bell, who, along with the foundation’s CEO, pulled from personal grant budgets to give Just Futures a $30,000 research grant last September. “Folks could both have access to retirement plans at lower costs, and, moreover, have access to plans that really would be aligned with their social justice values.”
SFF has been taking new steps in recent years to use its assets for change. It has steadily increased the percentage of its assets managed by women and people of color since 2016, and last week, it announced the latest expansion of its impact investing program. Efforts like Just Futures offer another potential lever. Bell agrees that the group has its sights set high, but says that’s the point.
“You’ve got to have the first folks that are willing to go out there and start the process, make the first mistakes, have the first successes — and then others will follow,” she said. “Our job in philanthropy, actually, is to invest in that kind of innovation.”
Correction: An earlier version of this article misstated how much Just Futures has raised. The platform has raised nearly $1 million in grants and $1.5 million in investments. It also misstated Judith Bell's title. She is San Francisco Foundation's chief impact officer.