Inclusive Economy | September 17, 2018

Bridging the gap in racial equity is investible

Roodgally Senatus
ImpactAlpha Editor

Roodgally Senatus

Investment vehicles designed to boost access to fair and decent work, housing and capital are proliferating.

In venture capital, for example, Harlem Capital, Backstage Capital, Kapor Capital and others are creating funds to put capital into the hands of minority entrepreneurs. Harlem Capital recent found 105 U.S.-based startups with black and Latino founders that raised more than $1 million, and $2.7 billion in total.

The investment trend is long overdue. Centuries-old policies and practices in the U.S. that have helped create opportunity and wealth for the white majority have largely bypassed communities of color. Wealth and other disparities along racial lines limit economic opportunities for tens of millions of people. Investors are starting to see opportunities in closing such gaps.

Cornerstone Capital Group, which recently crossed the $1 billion mark in assets under management, has outlined a multi-asset, multi-impact sector investment strategy to advance racial equity.

  • Access to capital. Investors can make fixed-income investments into community development finance institutions and community investment notes, which support small business in low-income communities. They can put their cash black-owned banks and community banks in communities of color.
  • Access to housing. Investors put money into an array of alternative investment vehicles expanding access to housing including affordable housing private-equity funds, community land trusts, co-op funds and more.
  • Income inequality. Investors can make active, public investments in companies with policies and practices that support living wages, pay equity, strong diversity policies, or invest directly in funds and companies that promote good jobs.

The impact alpha

By 2044, people of color will be the majority in the U.S. If current income and wealth gaps remain static, says Cornerstone’s John Wilson, “the overall pool of investment capital for entrepreneurship and home equity will be concentrated in fewer hands and sectors of the economy, which could cause social instability and major headwinds for future US economic growth.”

At the company level, firms that promote racial equity — in the workplace, in product design, in governance — will gain a competitive advantage over their peers by finding new markets and discovering overlooked talent.

So too might racial-equity lens investors. Kapor Capital, the $350 million venture firm of Freada Kapor Klein and her husband Mitch Kapor, invest in companies closing the income inequality gap. When it discloses returns next year, Kapor Klein says “We will easily be in the top quartile of VC funds.”