Bill & Melinda Gates Foundation - Our Investments

Editor's note: To learn more about our approach to the way the foundation's endowment is invested, please see Our Investment Philosophy.

January 11, 2007

I want to take this opportunity to follow up on recent media reports about the Bill & Melinda Gates Foundation’s investments and our processes for making decisions about them. I also want to clarify some aspects of our policy that may have been unclear in previous statements.

While we do not anticipate any change in our approach to investments, we have not previously described in writing the philosophy of the foundation and its co-chairs. This is an important topic, and we believe the following statement will clarify our position.

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The goal of the Bill & Melinda Gates Foundation is to make sure that all people—no matter where they live—get the chance to live a healthy, productive life. Two recent articles in the Los Angeles Times have raised questions about whether we should spend time evaluating companies and shifting our investments away from the ones that get a low score on some ranking criteria. We want to make it clear why the foundation focuses on our grantmaking, rather than on such evaluations, and we want to explain Bill and Melinda’s investment philosophy.

The most important thing a foundation does is choose a limited set of issues and develop expertise in them. Bill and Melinda have identified areas in which they think our grantmaking can help solve complex, entrenched problems that affect billions of people—like the AIDS and malaria epidemics, extreme poverty, and the poor state of American high schools.

Our foundation is building expertise in these areas and bringing together partners to tackle them. We work with governments, non-profit organizations, businesses, and individuals to solve tough problems. We have been able to encourage good actions by some corporations, including financial services and pharmaceutical companies, by creating new incentives for them to get involved in solving these problems. By supporting grantees who work in the areas we’ve chosen, our programs can have enormous impact on people’s lives.

Bill and Melinda oversee the investment of the foundation’s endowment. In giving guidance to the investment managers, they have chosen not to get involved in ranking companies based upon factors such as their lending policies or environmental record. There are dozens of factors that could be considered, almost all of which are outside the foundation’s areas of expertise. The issues involved are quite complex. Should a company get a failing score if 1 percent of its output is used in cigarette packaging, or if 1 percent of its stores’ sales are in tobacco? How far back in time do you evaluate behavior? If a company disagrees with your assessment, what appeals process is available? Which social and political issues should be on the list?

Many of the companies mentioned in the Los Angeles Times articles, such as Ford, Kraft, Fannie Mae, Nestle, and General Electric, do a lot of work that some people like, as well as work that some people do not like. Some activities might even be viewed positively by some people and negatively by others.

There are many important issues that the foundation does not focus on, such as lending laws and environmental regulation. The organizations that do work on those issues—together with governments and all of their legislative, executive, and judicial resources—play a critical role. We do not want to duplicate that role.

Bill and Melinda have prioritized our program work over ranking companies and issues because it allows us to have the greatest impact for the most people. They also believe there would be much room for error and confusion in such judgments, and that divesting from these companies would not have an effect commensurate with the resources we would divert to this activity. The foundation’s not owning a tiny percentage of a company or selling it to another investor would often go unnoticed, and Bill and Melinda would not be comfortable delegating this kind of judgment.

Shareholder activism is one factor that can influence corporate behavior. The foundation is a passive investor because we want to stay focused on our core issues. But as responsible shareholders, the investment managers do vote proxies consistent with principles of good management and good governance, and have voted against management’s recommendations when they have disagreed with them.

Of course, all investors face decisions about where to put their money, and where not to. Bill and Melinda have defined two instances in which the foundation will not invest:

1) if a company’s profit model is centrally tied to corporate activity that we find egregious. This is why the foundation does not own tobacco stocks. It’s unlikely that this choice has affected the activities of these companies, but Bill and Melinda have decided not to own these stocks in any case.

2) if owning shares in a company would represent a conflict of interest for Bill or Melinda.

The investment team will continue to enforce these two exceptions and to do regular reviews with Bill and Melinda on these and other investment issues. As part of these reviews, they will consider whether there are other exceptions. The team is also part of ongoing discussions with outside investment managers and consultants on a wide range of topics of interest to people who manage large endowments. Bill and Melinda’s decisions of course are also informed by their independent learning and by the conversations they have with people who bring different perspectives to this issue.

There has been an implication that we have been secretive about our investments. In fact, each investment is listed on the foundation’s tax forms, which are posted on our Web site. Anyone who wants to know what stocks, bonds, and other instruments we invest in can find out by examining our public tax records, as reporters have been doing for years.

Bill and Melinda recognize that they have been extremely fortunate.  In giving the money they’ve earned back to society, they have chosen to focus this foundation’s energy and expertise on program work because it has direct impact on people most in need. They are so excited about the possibilities that they have committed the foundation to spending every dollar within this century.

This is the way we are working to improve lives, and it is the best investment we can make.

Editor's note (May 9, 2007): In 2006, the foundation was reorganized into two separate entities—one that holds our endowment and one that conducts our programmatic activities. For further explanation, please read the Bill & Melinda Gates Foundation Trust page.