Investing in Diversity & Inclusion

3 Ways Community Foundations Participate in Place-Based Impact Investing

Community foundations focus on improving the lives of those in their local regions through place-based programming and grantmaking. Now, a growing number of the 750 or so community foundations in the United States are looking to impact investing to expand and strengthen their social impact.

For many, impact investing is a way to align social good with financial returns and tap their unique relationships to effect meaningful change. Here is a look at three of the tools community foundations use to invest for impact locally.

1. Loans

One advantage of offering loans is that they are expected to be paid back, so foundations can recycle funding to support more initiatives down the line. Flexible terms allow them to support low-income recipients with stretched resources.

In 2018 the Community Foundation for Greater Atlanta launched the GoATL Fund, an impact investment fund supporting programs that build affordable housing, provide support for small businesses, and expand early childhood facilities. It makes investments mostly through intermediaries like community development financial institutions (CDFIs) with expertise in deploying loan capital to address critical needs in the region.

In January 2021 the fund closed a $250,000 investment in LiftFund, a nonprofit that supports finance entrepreneurs. The investment is set to provide no-interest loans to Black, Indigenous, and people of color (BIPOC)–owned businesses in the Atlanta metro area. Initially capitalized with $10 million in seed capital, donors have since grown its size by 40% with commitments of nearly $4 million to the fund.

One advantage of offering loans is that they are expected to be paid back, so foundations can recycle funding to support more initiatives down the line.

2. Donor-Advised Funds

Donor-advised funds (DAFs) allow donors to support nonprofit or mission-aligned for-profit companies. The funds are typically hosted by a community foundation or another public charity, which invests a pool of money that serves as grants to nonprofits of the donor’s choosing. More recently, community foundations have explored more varied ways of deploying DAF assets, such as specialized pooled funds in which multiple donors and investors join around shared interest areas like the development of local business communities.

For example, the Denver Foundation created a local Impact Investing Fund with contributions from donors and DAFs held at the foundation along with foundation cash reserves. It offers below–market-rate loans to nonprofits and intermediaries aligned with the foundation’s areas of focus, such as economic opportunity, education, and leadership and equity. The fund provided $200,000 to Greenline’s Small Business Capital Fund, which targets small companies in economically struggling areas. DAFs held at the Denver Foundation also gave $2.2 million in co-investments.

One example of a more unusual DAF is the collaboration between the Philadelphia Foundation and Reinvestment Fund, a mission-driven financial institution. Called the PhilaImpact Fund, it connects local impact investors with neighborhood development projects that promote housing stability for low-income families, higher educational attainment, and other outcomes in the Greater Philadelphia region. Investments are made through the foundation’s DAF or a promissory note offered through Reinvestment Fund.

3. Catalytic Program-Related Investments

When community foundations make program-related investments (PRIs), their efforts primarily target generating positive impact rather than financial gain. Because organizations involved in these below–market-rate loans, equity investments, guarantees, and other investments also accept disproportionate risk or concessionary returns, they can kick-start investments that more traditional investors might not want to take on initially.

A pioneer in this context is the $2.5 billion Cleveland Foundation. One of the largest community foundations in the US, it plans to allocate $150 million in impact investing by 2022. It was the first community foundation in the country to deploy a PRI in 1982, when it advanced nearly $4 million to buy the land and buildings that saved Cleveland’s Playhouse Square from demolition. More recently, its Social Impact Investing program made a $1.5 million PRI in 2019 to help renovate an 80,000-square-foot former industrial building and turn it into a home for at least 11 creative tenants and nonprofits. Ultimately, the renovation aims to provide the anchor for a revitalized neighborhood.

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