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Sustainable Philanthropy Case Study - Kresge Foundation

Updated: May 29, 2020

Sustainable Philanthropy Case Study

Name: The Kresge Foundation

Type: Private Charitable Foundation

Size of Endowment: $3.6 bn

Year of Establishment: 1924


Established by Sebastian S. Kresge in 1924, the Kresge Foundation is a $3.6 billion private, national foundation headquartered in Troy, Michigan. The foundation works to expand opportunities in America’s cities through grantmaking and investing in arts and culture, education, environment, health, human services and community development efforts. The endowment is led by Chief Investment Officer Robert Manilla, along with 12 other members on the investment team.


In 1924, with an initial gift of $1.6 million, Sebastian Spering Kresge established The Kresge Foundation in Detroit. He did this to commemorate the 25th anniversary of the S.S. Kresge Company, which began as a single five-and-10-cent store and grew to become known as the Kmart Corp.

Kresge chaired the first foundation board meeting and then served as treasurer until his death in 1966, at age 99. By then, he had contributed $60.5 million to the foundation.

Early grants from the Foundation were awarded to churches and special youth and temperance programs as a reflection of its founder’s religious faith and personal beliefs. After World War II, its funding shifted to support the construction and renovation of facilities, equipment and property through challenge grants, which required recipients to raise additional private funds. Kresge’s support is acknowledged as the namesake for hundreds of libraries, hospitals, lecture halls, auditoriums, community recreation centers and summer camp lodges worldwide.

Today, the Kresge Foundation is a strategic philanthropy that awards grants and deploys other capital tools to address intractable social and economic issues at their roots. In many cases, the Foundation stitches together multiple support systems while measuring impacts and outcomes in a constant process of adaptation and improvement. As funding of public services wanes across the country, Kresge now invests in networks and collaborations of communities and people, rather than primarily in infrastructure. Kresge’s work has evolved to support organizations working to expand opportunities for low-income people in America’s cities. The Foundation awards grants, convenes partners, shares knowledge and helps strengthen the civic sector through six program areas: Arts and Culture, Education, Environment, Health, Human Services and community development in Detroit.

In partnership with the programs, Kresge’s Social Investment Practice leverages a range of capital instruments including loans, deposits, guarantees and equity investments to further address social challenges. Meanwhile, Kresge’s American Cities Practice exports lessons from its role in Detroit’s recovery to partners working in other U.S. cities. Since its inception, at least one S.S. Kresge descendant has continually represented the family on the Foundation’s Board of Trustees.

In 2015, Kresge committed to invest $350 million by 2020 through social and mission-related investments and to leverage $1 billion toward the expansion of opportunities in America’s cities.


Throughout the years, Kresge’s mission has stayed constant: to help create pathways for low-income people to improve their life circumstances and join the economic mainstream. In the words of Rip Rapson, president and CEO, “creating opportunity for low-income people is a hallmark of our work at The Kresge Foundation.”

Investment Program:

Investment Philosophy

Kresge Foundation’s primary investment objective is to preserve and grow the endowment by at least 5.5% over the long term. To achieve this, Kresge conducted strategic investments that generate returns in excess of the annual grants, social investments, administrative spending and inflation.

Today, the Foundation invests in a wide variety of asset classes, including equity, fixed income, real estate, private equity, commodities, currency and hedge funds. Although the fund does not publicly discuss its strategy, we can gain insight into some of the core thoughts from an interview with the former CIO Edward Hunia in 2008.[1]

In the interview, Hunia first de-emphasizes fixed income, which he thinks doesn't do enough to meet that return goal. He also noted that the fund generally looks at alternative assets with low correlations to the stock market. That means investing in a variety of hedge funds, except those with the strategy of going long or short the equity market. According to Hunia, “our philosophy is you can add assets like real estate, oil and private equity, which might seem risky, but taken together can boost returns and lower volatility.” The interview notes that the fund had 20% of its investments in hedge-funds in 2008.

In summary, the fund seems to emulate parts of the Yale Endowment model: invest in several alternative assets and managers in order to diversify risk and boost returns. Kresge shies away from Long/Short equity managers, and also embraces investments in small funds, shuns consultants, and seeks overlooked specialty investments. Yale Investment Office’s former Senior Director Dean Takahashi was a member of Kresge’s investment committee.

Overall, Hunia closed the 2008 interview with the following advice: reducing fixed income and dropping active equity managers, "since you can't find [an equity manger] who can consistently outperform." He also would work on getting the right hedge-fund mix of investments and proper use of derivatives.

Recently, the fund has also embarked on some impact investments. Kresge, however, is wading into it cautiously.


Over the last 16 years (2003-2018), Kresge’s investment portfolio generated 10.14% annualized return. This is one of the strongest performances for diversified portfolios managed by foundations. Kresge’s performance was almost in line with Yale’s until 2013-2014. In fact, this is quite impressive achievement.

Edward Hunia, Kresge’s previous CIO, took his position in 1992 when the fund had $1.2 billion in assets. By 2008, those assets have more than tripled. The foundation earned a 16.3% annualized return between 2004-2008. After Hunia’s retirement in 2008, Robert Manilla – who had started working at Kresge since 2005 – took over the position of CIO. In December 2013, the team was named Best Foundation Investment Office by aiCIO magazine. For the five years ending Dec. 31, 2015, the endowment has returned 8.7 percent annually. Despite the tumultuous global market, Kresge earned 3.4 percent in 2015. The fund has produced industry leading returns among institutional portfolios over $1 billion.

Asset Allocation

Among foundations, Krege is a pioneer of the endowment approach. They started allocating capital to Absolute Return (hedge funds) and Private Equity strategies very early and they have a well-diversified portfolio by 2003. The asset allocation of Kresge in 2003 was very similar to Yale.

Today, Kresge’s asset allocation is somewhat different from Yale’s, but still quite similar. Like Yale, Kresge started reducing their exposures to hedge funds relatively early while other endowments and foundations poured a lot of capital into the industry.

Note:Kresge’s data is as of Dec 31 and Yale as of June 30

Manager Selection

Rob Manilla, current CIO of Kresge, provided an interesting insight on how they think about asset allocation and manager selection in an article title “the Cost of Being Average”.

“The reality is no matter whose forecast you use, no one has asset allocations that tend to earn 7.5% going forward… So what are my choices? My choices are to take more risk, lever my portfolio, and find active management to make up that difference through alpha. Being average isn’t an option.”

“We are big believers that active management can work in less-efficient markets, and it’s been proven out in our history… We’re not going to spend any time looking for active managers in efficient markets—but in markets that are less efficient, we spend a lot of time, energy and effort trying to find managers we think can generate alpha.”

The article says “Two-thirds of the Kresge Foundation’s domestic equity investments are in actively managed small-cap funds, while the foundation’s hefty emerging markets allocation is 100% actively managed through individual country mandates.

Source: Kresge Foundation

Source: Yale Investment Office

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