A family that saved their home from foreclosure thanks to a program called Stabilizing Urban … [+]
Courtesy of Kresge Foundation
To boost investments in areas deemed too risky by most traditional financial folks, foundations and other like-minded impact investors have been banding together to goose available capital.
The latest example: The Community Investment Guarantee Pool. With $33.1 million in commitments from nine philanthropic organizations, one large health care system and a nonprofit lender, the pool aims to catalyze community development finance in such areas as small business, climate and affordable housing.
Removing a Layer of Risk
Guarantees are unfunded commitments from an organization’s endowment. According to Joe Evans, portfolio manager, social investment practice for the Kresge Foundation, such guarantees provide risk protection to lenders, like community development financial institutions (CDFIs). The new pool stands to create more than $150 million in new investments, he says.
“The guarantee pool will allow more investors to feel comfortable putting their dollars into community investments,” says Teri Lovelace, president of LOCUS Impact Investing. “And it will allow those in under-resourced areas to receive investment capital they might not otherwise have been able to get.” A subsidiary of CDFI Virginia Community Capital, LOCUS will be the program manager monitoring and managing the portfolio, as well as working with investors and underwriting the guarantee commitment.
The Kresge Foundation, which has led the effort, committed $10 million to the pool. “Using the guarantee helps us leverage our balance sheet to create impact today without using cash reserves,” says Evans. “We’re removing a layer of risk that will catalyze investment from other sources.”
The effort started in 2017, when Kresge commissioned the Global Impact Investing Network to study the use of guarantees by impact investors and philanthropic groups. The findings zeroed in on an overall appetite for using guarantees, but a lack of expertise to act on that interest. Those conclusions, plus other research, pinpointed a need to find an intermediary able to provide a centralized source of credit enhancement and step up community investments.
An Existing Portfolio
Kresge already has a track record of 30 deals and about $100 million in guarantees. For example, in 2017, it made a $3 million guarantee to BlueHub Capital to back SUN, or Stabilizing Urban Neighborhoods. That program aids homeowners facing foreclosure stay in their homes. The Kresge guarantee helped SUN apply for and receive a $100 million loan from the federal CDFI Bond Guarantee Program.
Another example: In 2018, the foundation made a program-related loan and guarantee of $1.4 million to support the Entrepreneurs of Color Fund, which aims to improve minority-owned small business owners in Detroit access to capital.
In addition to Kresge, participants in the pool include Annie E. Casey Foundation, California Endowment, Chan Zuckerberg Initiative, CommonSpirit Health, Gary Community Investments, Jessie Ball duPont Fund, Phillips Foundation, Seattle Foundation, Virginia Community Capital and Weingart Foundation. Rockefeller Foundation is a grant supporter.
“It’s a unique collaboration in our space,” says Evans.