ImpactAlpha, Jan. 28 – Cash sitting idle in impact investors’ portfolios may total tens of billions of dollars. That capital is not actively doing any good – and, depending on where it is held, may even be doing harm.
Tiedemann Advisors worked with StoneCastle Cash Management to create an impact-oriented version of its Federally Insured Cash Account, or FICA, which allocates cash balances across more than 800 financial institutions.
FICA Impact screens for banks with less than $10 billion in assets, are located outside of the wealthiest metro areas, and have strong Community Reinvestment Act ratings, so that the capital goes to “community banks that are serving the markets that need capital the most,” Tiedemann’s Brad Harrison told ImpactAlpha.
Community banks hold just 17% of banking assets but are responsible for nearly half of all small business loans. More than a third of all U.S counties rely on community banks as their sole financial provider, according to the Small Business Administration.
FICA Impact cash balances are held in deposit accounts at community banks to qualify for FDIC insurance. Clients open one custodial account and FICA Impact’s automatically divvies up the balance across multiple community banks. In the future, clients may be able to tailor the allocation further, for example, by geography or types of communities served.
The current yield is around 1.6%, in line with institutional money market accounts; funds are available the next day.
Tiedemann clients such as the Russell Family Foundation and Jessie Smith Noyes Foundation are looking for “total impact activation,” Harrison says. “I used to think about cash as the last allocation I would make into impact when onboarding a new client. Now it’s probably the first allocation I would recommend.”
To date, cash options have “sacrificed either impact or returns, or not delivered true cash-like liquidity,“ writes CNote’s Cat Berman in our What’s Next series (see, “More Agents of Impact answer the call for new tools to reshape finance”). CNote’s product directs idle to cash to community development financial institutions. Cash, says Berman, is impact’s “final frontier.”