Geographies | April 27, 2018

Philadelphia Model: Reinvestment Fund and Philadelphia Foundation commit $10M to place-based PhilaImpact fund

David Bank and Dennis Price
ImpactAlpha Editor

David Bank

ImpactAlpha Editor

Dennis Price

ImpactAlpha, April 27 – A community foundation and a longtime economic-development lender are teaming up to increase access to capital for schools, supermarkets, health care and housing projects with measurable impact in the Philadelphia region.

The PhilaImpact Fund may be a model for other regions seeking to tap the interest of local investors in revitalizing their own communities. The fund will invest in local businesses and projects that create jobs, provide social services and boost access to food, housing and the arts. The Philadelphia Foundation and the Reinvestment Fund, a nonprofit community development financial institution, seeded the fund with the first $10 million toward a $30 million goal.

The $5 million commitment is the first impact investment from the Philadelphia Foundation’s endowment. The foundation manages around 400 donor-advised funds through which investors can invest tax-advantaged contributions in PhilaImpact, with a $100,000 minimum.

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The Reinvestment Fund, which started in Philadelphia and now operates in almost two-dozen states, also committed $5 million to PhilaImpact. Reinvestment Fund will offer its Promissory Notes to investors with a minimum $1,000 investment. That gives local small investors, as well as local institutions, a rare opportunity to invest in local economic development projects vetted by an established lender. Investors in the fund will earn 2.25% annually over a five-year term.

The Reinvestment Fund, which last year raised $50 million with one of the first public bond offerings by a so-called community development finance institution, has invested in Shift Capital, an “inclusive real estate” developer that has raised $38 million to rebuild Philadelphia’s Kensington neighborhood with manufacturing, commercial and community services. Reinvestment Fund, with other funders, also supported the Philadelphia expansion of First Step staffing, an Atlanta-based nonprofit that provides employers with a workforce and job opportunities for homeless, veterans and formerly incarcerated returning citizens.

“We want to build a deeper community of impact investors here in Philadelphia,” said Don Hinkle-Brown, CEO of Reinvestment Fund, who made the announcement with Philadelphia Foundation CEO Pedro Ramos at the Total Impact conference in Philadelphia, in a panel moderated by ImpactAlpha’s David Bank.

Place-based models

The PhilaImpact Fund is part of a wave of efforts to catalyze “place-based” impact investing. For all the interest investors have in supporting projects close to home, effective vehicles for raising and placing such capital have been surprisingly rare.

In Chicago, the MacArthur Foundation, Chicago Community Trust and Calvert Impact Capital teamed up in 2016 to create Benefit Chicago, which has raised $95.5 million (of a target $100 million) to invest in nonprofits and social enterprises in Chicago. Other efforts include the Minnesota Impact Investing Collaborative, and the New Mexico Impact Investing Collaborative. On today’s announcement, Debra Schwartz, who leads impact investments at the MacArthur Foundation said, “It is exciting to see innovative, place-based impact investing initiatives taking root nationwide.”

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A limiting factor for such place-based funds has been the capacity needed to generate a pipeline of investible opportunities, Calvert’s Beth Bafford told ImpactAlpha. Because of Reinvestment’s Fund’s origination capabilities, “that won’t be a challenge here,” said Hinkle-Brown. Reinvestment Fund, which last year invested $62 million into the broader Philadelphia region, will underwrite PhilaImpact’s loans and provide regular impact reports to investors.

Such financing structures are important for local ecosystems of impact entrepreneurs. Many lenders don’t credit the extra efforts that supermarkets, childcare centers and health clinics go to to provide job opportunities, source locally and ensure inclusion across race and gender. With the new pool of capital, projects and businesses that take five to seven years to develop can now count on local, mission-oriented financing.

“The creation of the PhilaImpact Fund demonstrates the continued growth of innovative, collaborative place-based impact investing models,” said Matt Onek, CEO of Mission Investors Exchange, which is highlighting the trend at a national conference in Chicago next month. The Urban Institute will release a report at the conference on such place-based models “sprouting up throughout the country,” Onek said.

Community capital

The Philadelphia Foundation’s investment is part of a growing trend of community foundations that are adding impact investing to their toolkits. “We get more done by thinking more strategically without giving up an inch of rigor,” said Pedro Ramos, CEO of the foundation. The math was easy, said Ramos. “This is a great secure investment for our fixed income allocation.”

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As a community foundation, “We are hyper local. We are all about place,” Ramos said. “We think it’s important to invest and build public benefit for Philadelphia.”

The fund adds another layer to Philadelphia’s impact capital infrastructure. Last year, a consortium of impact investors and local institutions committed $15 million to ImpactPHL Ventures, a pool of capital dedicated to early-stage social enterprises and managed by Ben Franklin Technology Partners, a regional economic-development investor.

Halloran Philanthropies, the foundation of Philadelphia magnate Harry Halloran, is covering set-up fees for new donor-advised funds investing in PhilaImpact, and making its own investment.