The Brief | November 6, 2018

Raj Shah on opportunity zone experiments; Hamilton Lane, Aavishkaar and Polymath raise funds; Russell Family Foundation’s move to mission-investing

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The Opportunity Zone experiment in reviving economic mobility, a Q&A with Rockefeller Foundation’s Raj Shah. Experimentation. That’s the keyword that pops out of a conversation with Rajiv Shah, president of the Rockefeller Foundation, who is keen on making the most of the expected infusion of capital into low-income Opportunity Zones. The zones are “the biggest experiment today in the American economy…to tackle what I think is the biggest challenge in the American economy, which is the lack of opportunity that so many American households suffer through, and to change the hopefulness and aspiration they have for their children.” Shah sat down with ImpactAlpha’s David Bank at last month’s SOCAP conference in San Francisco.

In the 8,700 designated census tracts across the U.S. eligible for investments from tax-advantaged “opportunity funds,” impact investors have the opportunity to connect their impact strategies to a broader group of people who have capital. “We have an opportunity to bend the curve and ask ourselves, ‘Can we take risks and experiment and use this policy change to address this challenge?’” When the Rockefeller and Kresge foundations put out a call for opportunity fund managers intentionally seeking positive outcomes in low-income communities, they received some 150 proposed impact-driven funds seeking to raise up to $12 billion. The foundations aim to increase the chances of successful experiments with up to $25 million in grants and guarantees. “In a political environment where there’s more acrimony than consensus,” he says, ‘I feel like we’ve got to take the shots on goal we have and make them the best shots we can take.”

Read ImpactAlpha’s Q&A with Rockefeller Foundation’s Raj Shah on Opportunity Zone experiments in reviving economic mobility.

Dealflow: Follow the Money

Hamilton Lane secures $7.5 million for first impact fund. The Philadelphia-based private equity firm joins the ranks of Bain Capital, TPG, and KKR, albeit on a smaller scale, in launching a dedicated impact investing vehicle. It has raised $7.5 million from three investors, according to an SEC filing. Hamilton Lane, which has more than $54 billion in assets under management, has not commented on the fund’s target size or strategy. Watch for activity in health and wellness, community development, financial empowerment, energy, the environment and other “opportunity” areas. Dig in.

Aavishkaar ups the ante on South Asian impact. With its eighth fund, the India-based impact investor is looking for investments in Indonesia, Vietnam and Myanmar. Indonesia is “the next hub of impact investing,” says Aavishkaar’s Vineet Rai. Aavishkaar previously raised a $75 million fund for South Asian investments. It’s fundraising target for this fund is $300 million. The firm is currently raising two other funds: a $150 million Africa-focused fund and a $200 million India-focused fund. Here’s more.

Polymath to expand Latin America business-building with venture fund. Bogotá, Colombia-based Polymath Ventures is looking to raise a $100 million fund to help high-impact companies in Latin America with early- and growth-stage capital. The Horizon Fund will support startups like the eight Polymath has built in-house to digitize transportation, financial services, employment, health and wellness and other basic services in dense, low-income Latin American cities. The details.

Signals: Ahead of the Curve

This foundation moved most of its endowment to impact… and outperformed its benchmark. The Russell Family Foundation’s journey to align its $141 million endowment with its philanthropic mission began with a contradiction: Does an environmental foundation undermine its grants to improve water quality by investing in businesses that pollute local waterways? The inquiry jump-started a process that led the foundation to embrace a role as an investor, asset owner and shareholder seeking to protect the environment and empower local communities in the Pacific Northwest and Puget Sound. As the foundation has achieved nearly 75% alignment over the last five years, the mission-aligned portfolio outperformed its benchmark by nearly 3%. A snapshot of the portfolio:

  • Positive tilts. About $61 million of the foundation’s mission-aligned portfolio is invested through positively screened low-carbon portfolios managed Aperio Group, Breckinridge and SNW Asset Management.
  • Impact and place-based funds. The foundation has backed sustainable forestry funds from Lyme Timber and Ecotrust Forests, an affordable housing fund from Jonathan Rose, Agriculture Capital’s sustainable and organic agriculture fund and waste-to-energy projects through the Wastewater Opportunity Fund.
  • First-time funds. The foundation makes higher-risk, potentially lower-return investments with the potential for outsized impact, including in first-time funds. One example includes the Forterra Strong Communities Fund, which acquires land in Seattle and Tacoma considered “at-risk” of market-rate development and then applies site restrictions to ensure any future development will be community-oriented.

The Russell Family Foundation joins a growing list of foundations deploying more of their endowments for mission. In March, the Nathan Cummings Foundation pledged to align its entire $443 million endowment with its mission, including fighting climate change and income inequality. The F.B. Heron Foundation last year announced that it met its goal to align 100% of its approximately $250 million in assets with its mission of fighting poverty. Ford Foundation has carved $1 billion from its $12.4 billion endowment for mission-related investments. The Kresge and McKnight foundations and the Wallace Global Fund are also making mission-related investments from their endowments. Share, “The Russell Family Foundation moved most of its endowment to impact… and outperformed its benchmark.”

Agents of Impact: Follow the Talent

The Chan Zuckerberg Initiative is hiring a head of artificial intelligence and machine learning… Register now for “Putting the ‘Activist’ in Shareholder Activism,” a Transform Finance webinar on Thursday, Nov. 15… Earn an executive certificate in impact investing with this three-day course taught by Dennis Lanham and John Kohler at the Silicon Valley Executive Center at Santa Clara University.

November 6, 2018.