Affordable housing, small businesses and civic infrastructure projects in Michigan could see new impact investment from the state’s foundations in the wake of a new deal the Council of Michigan Foundations has brokered with Boston-based Community Capital Management.
Through the deal, Michigan foundations will be able to make a minimum impact investment of $100,000 rather than the $500,000 minimum others must invest in the $2 billion CRA Qualified Investment Institutional Shares fund.
The Fund invests in fixed income projects that have a social impact, such as affordable housing, small business loans and civic infrastructure.
At the same time, Michigan foundations will be able to direct their investment to one or more counties in the state, enabling them to impact local geographies.
And Community Capital, the manager of the fund, will provide foundations with impact reporting on the investments, such as the number of families or children housed through an affordable housing development that saw investment from a foundation.
The traditional investment model is that foundations and other charities place their money with an investment advisor who invests it in Wall Street or Nasdaq, said Jennifer Oertel, who leads the Tax Emept Organizations and Impact Investing practice at Jaffe, Raitt, Hueur, & Weiss P.C. She also serves as outside counsel to the Council of Michigan Foundations.
Traditionally, those nonprofit investors were only worried about the financial return. Impact investing goes further by seeking to create a positive social impact in the community with the investments.
There’s only so much availability of philanthropic (grants and charitable contributions) capital but a lot of need, she said.
“How do we bridge the gap between the huge amount of need and charitable contributions? One way to do this is to harness some investment assets to help create impact in the community.”
The lower minimum investment for the Community Capital fund makes impact investing more accessible to smaller foundations that may have limited resources and to foundations that don’t have the staff expertise or that have board members who are risk-averse, Oertel said.
“We thought this was hopefully a way they could dip their toe in the water in impact investing … see the impact delivered back … (and) perhaps want to take another step,” she said.
CMF named Oertel as its first “expert in residence” on impact investing. In that role, she will provide impact investing information, assistance and referrals to any interested investors in Michigan, not just foundations.
As with other investments, there’s a spectrum of risk/reward in impact investing. The CRA Qualified Investment Institutional Shares Fund, a publicly traded, fixed-income bond fund, is a less risky investment in impact investing, Oertel said. And most foundations already have a percentage of their investment portfolio in fixed-income funds.
Of the $2 billion in the fund, $140 million is invested in impact efforts in Michigan, she said.
Battle Creek Community Foundation has already stepped up to take advantage of the lower threshold for the fund, making an investment directed to Kent County, Oertel said.