Geographies | June 13, 2018

Impact investors mobilize around inclusive Opportunity Zones

Dennis Price
ImpactAlpha Editor

Dennis Price

The passage of the Investing in Opportunity Act created equal parts enthusiasm and anxiety. Now, worry has, at least in part, begun to shift toward a mobilization of resources, networks and identified best practices for effective community investment.

The provision of last year’s U.S. tax bill lets investors defer and even reduce capital gains taxes by redeploying those gains into investment funds targeting underinvested U.S. communities. The Rockefeller Foundation’s Raj Shah said at last month’s Mission Investors Exchange conference that an influx of outside capital could lead to “not lifting up those that this was intended to lift up.” The Kresge Foundation’s Rip Rapson added, “Think of how easy it is for this to go sideways.”

>>MORE: Getting ready for the opportunity – and peril – in Opportunity Zones

Guarantee’ing impact. Kresge Foundation and Rockefeller Foundation are dangling up to $25 million in grants and unfunded guarantees for fund managers establishing new Opportunity Funds “designed to benefit low-income people and communities.” (Unfunded guarantees obligate the foundation to take responsibility for a portion of losses if an investment fails.)

As passed, the Investing in Opportunity Act does not require or include a provision for long-term impact reporting. The foundations are accepting a letter of inquiry from “mission-aligned” fund managers that not only aim to invest to improve the lives of people in low-income communities and deliver returns to investors, but “will evaluate the impact of investments over time.” The letter of inquiry period ends on July 16.

Rip Rapson of the Kresge Foundation, writing in ImpactAlpha, proposed principles to guide investments toward impact, including making investments “that plug into long-term plans to raise standards of living.”

Lessons from the field. The presence of strong social networks may make the difference between communities able to recover from disinvestment and those that struggle to, says a new report from MDRC, which studied MacArthur Foundation’s investment in Chicago neighborhoods. “To invest in a place—whether for profit or for public benefit, whether an urban neighborhood or a rural community—is to place a bet on the strength of that community’s economic and social fabric,” writes Maurice A. Jones, CEO of Local Initiatives Support Corp, in a response to the report.

Fund creation. Access Ventures’ Bryce Butler and Village Capital’s Ross Baird, also a Kauffman Fellow, are exploring the creation of an Opportunity Zone fund.  Butler and Baird are keen to answer the question: How can you build an investment strategy that helps entrepreneurs across the country from all backgrounds, not just the 1% of companies that raise venture capital? Their initial principles for such a fund: Make it place-based and local and connect communities to national best practices.

>>MORE: Bryce Butler: Quarterbacking capital into Louisville’s neighborhood economies

Opportunity Zones Coalition. A network organized by the Economic Innovation Group, the think tank behind the Act, will work with public and private investors to ensure the tax bill’s Opportunity Zones provisions drive positive impact. Among the few dozen investors: Access Ventures, Calvert Impact Capital, Capital Impact Partners, LISC and Reinvestment Fund.

>>MORE: John Lettieri and Steve Glickman: Turning capital gains into community investments

Editor’s note: A previous version of this post incorrectly stated that the letter of inquiry period for Kresge and Rockefeller foundation Opportunity Zone funding opens on July 16. In fact, the LOI period ends on July 16.