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Sunday, 01 October 2017 17:18

Partnership paves way for foundations to make ‘impact investments’

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Partnership paves way for foundations to make ‘impact investments’ Courtesy Illustration

GRAND HAVEN — Foundations in Michigan are preparing to make financial investments designed to solve social issues while also increasing their asset funding pool.

A deal orchestrated by the Council of Michigan Foundations with Boston-based Community Capital Management (CCM) will enable foundations in the state to make a minimum impact investment of $100,000 through the company’s publicly traded mutual fund, rather than its normal threshold of $500,000. The lower minimum will open investment opportunities to smaller foundations throughout the state.

The move came as members of the Council of Michigan Foundations had been asking the group to find an investment tool that will allow them to make conservative investments in the state’s counties, said President and CEO Rob Collier.

“They wanted it to actually be county- or region-specific,” Collier said. “We have been working on this project for quite a while.”

The Global Impact Investors Network defines “impact investments” as investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return.

Through its national bond fund, CCM already has invested more than $150 million in Michigan, according to Collier.

Typically, the fund invests in projects ranging from affordable health care and rehabilitation, affordable housing, education and childcare, neighborhood revitalization and redevelopment, and rural community development.

Collier said leaders of community and family foundations wanted to find ways to help out their regions.

“That’s the novel aspect in this fund. It gives foundations the opportunity to invest in something more targeted for their local communities,” Collier said. “The investment and endowment side will get a return on this.”

The Battle Creek Community Foundation is among the first participants to use the impact investing tool with a $500,000 investment. Half has been designated for Calhoun County with the remainder to be invested statewide, said President and CEO Brenda Hunt.

However, Hunt and her team won’t be deciding exactly where that money goes.

This is all investor-designated,” said Jennifer Oertel, chair of the tax-exempt organizations and impact investing practice at Jaffe, Raitt, Heuer & Weiss PC in Southfield who also serves as  impact investing expert-in-residence at the Council of Michigan Foundations. “They can say to CCM, ‘I want my money to go only to Calhoun County.’ CCM has networks of people and they put out alerts to sub-advisers and managers to let them know that we’ve got this much money and we need to find a fund for it.”

Battle Creek’s Hunt, an early proponent of impact investing, said she has no misgivings about the third-party investment strategy. She and her volunteer leadership use other methods that ensure a balanced approach in addition to the impact investing model.

“I’m not concerned because we have folks who are doing the thinking for us,” Hunt said. “Having a third party works and they are specialized in this area with a long history of economic development in local communities. We also have an impact investing panel where we do the picking ourselves.”

Impact investing is not intended to supplant philanthropy, but it is another tool in the toolbox, Oertel said. The CCM Fund is a fixed-income fund, which is considered a lower risk with a lower rate of return, thereby adding to the variety a diversified portfolio should have, she said.

“Everyone’s investments have an impact — whether intentional or not, positive or negative — and by targeting our investment assets to intentionally generate social impact, then we can help bridge the gap between limited dollars available for philanthropy and the much higher level of need in our communities,” she said.

Those making decisions about the investment dollars will listen to input from the communities they work with, but they ultimately must rely on their own team of experts because of stringent investment regulations that must be followed.

In essence, the Battle Creek Community Foundation can tell fund representatives at Community Capital Management how much they want to invest in Calhoun County, but that’s the extent of their influence. Oertel said the final decision always rests with CCM and the fund sponsor, and the organization can use available tools to evaluate the impact investments are making.

As part of the deal the Council of Michigan Foundations brokered with Community Capital Management, the fund managers work with the investors to engage evaluators so that they can report on the impact of the dollars invested, according to Oertel.

At Battle Creek, Hunt said stakeholders will ask her to account for the foundation’s investments and assets. Having those measurements in place at the fund level will be an important tool in her reporting, she said.

Starting with low-risk assets makes sense for the Battle Creek Community Foundation, Hunt said, adding that she hopes that the relationship with Community Capital Management will lead to a broader selection of investment opportunities for her organization.

“We have to be careful and we have to know who our partners are, but impact investing enhances and demonstrates to the community that we have more to offer,” Hunt said. “This is the future of community foundations, and donors are going to demand that. We are in the early stages, but there will be a day when these types of investments will be common practice.”

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