The Brief | September 17, 2018

Private debt meets impact, incentives for opportunity fund impact, investing in racial equity

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Featured: Impact Voices

Private debt investors look for impact to reduce risk and lower costs. Hedge fund billionaire Marc Lasry recently made a splash on CNBC with the claim his $14 billion Avenue Capital is “finding huge opportunities” in impact investing. Significant: the opportunities are “especially on the credit side,” Lasry said, “where most people are doing impact on the equity side.” Lasry was flagging “private debt,” direct business lending from funds rather than banks. His comments likely sent many such investors googling “impact investing” to find chances to grow businesses and create jobs, as well as ways to mitigate risks, lower costs and grow their assets, Chloe Zhu writes in a guest post on ImpactAlpha.

Private debt’s discovery of impact investing is overdue. The private-debt boomlet that emerged from the 2008 financial crisis grew to a record $107 billion last year raised by hedge funds and other asset managers. Globally, many impact investment funds capitalize microfinance institutions in emerging markets. But few U.S. private debt funds have targeted impact; those that do collectively manage less than $1 billion. “It is time to realize the immense opportunity to apply an impact lens,” writes Zhu, herself a credit investor at White Oak Global Advisors in San Francisco. Her arguments: Impact strategies can reduce the risks of direct lending. Impact strategies can lower the cost of capital. And impact strategies can attract a new crop of investors.

Read, “Private debt investors look for impact – to reduce risk and lower costs” by Chloe Zhu on ImpactAlpha.

Dealflow: Follow the Money

Kresge and Rockefeller identify opportunity fund managers for grants and support. The two foundations, which have committed $25 million, have identified 20 opportunity fund managers with potential for “driving positive outcomes in low-income communities.” Some will receive grants; Kresge also is considering investments, likely in the form of guarantees, for some of the fund managers. Opportunity funds are vehicles for deploying capital into the new opportunity zones designated under the Investing in Opportunity Act in last year’s U.S. tax bill. Kresge and Rockefeller received more than 140 responses to their call for “mission-aligned” fund managers aiming to improve the lives of people in low-income communities, deliver returns to investors and “evaluate the impact of investments over time.” The foundations did not release the names of the organizations under consideration. What we know.

Signals: Ahead of the Curve

Bridging the gap in racial equity is investible. Investment vehicles designed to boost access to fair and decent work, housing and capital are proliferating. Harlem Capital, Backstage Capital, Kapor Capital and other firms are creating funds to put capital into the hands of minority entrepreneurs. 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. Fixed-income investments into community development finance institutions and community investment notes can support small business in low-income communities. Putting cash into black-owned banks and community banks enables lending in communities of color.
  • Access to housing. The array of alternative investment vehicles that can expand access to housing includes affordable housing private-equity funds, community land trusts, co-op funds and more.
  • Income inequality. Investments in public and private companies with policies and practices that support living wages, pay equity, strong diversity policies can create not only jobs, but good jobs.

Continue reading, “Bridging the gap in racial equity is investible,” by Roodgally Senatus on ImpactAlpha.

Agents of Impact: Follow the Talent

Mission Investors Exchange will explore the role of philanthropy in opportunity zones in an Oct. 4 webinar… Big Society Capital’s Good Finance initiative seeks a project manager… Global Partnerships is looking for a director of investment research and impact.

September 17, 2018.