Features | April 18, 2019

Sexy impact munis, Acumen’s off-grid energy fund, rural childcare, alt-credit in the UK, flexible Opportunity Zone regulations

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Greetings, Agents of Impact!

Featured: Returns on investment podcast

Impact investors start to make stodgy municipal bonds sexy (podcast). Hidden within the $3.8 trillion market for U.S. municipal bonds are not only mispriced social and environmental risks, but huge potential for on-the-ground impact in historically disadvantaged neighborhoods. Municipalities borrow money to build roads, bridges, schools, wastewater treatment plants, solar arrays, wind farms and other vital infrastructure. That makes municipal bonds the original impact vehicles, says Eric Glass, who manages AllianceBernstein’s $500 million municipal impact strategy. Glass invests only in underserved and low-economic-status communities. Each investment is made with a specific intention – for school bonds, to close the achievement gap; for hospital bonds to reduce the “death gap” between wealthy and poor zip codes. “I can’t think of anyone who looks at the municipal-bond market and thinks of it as exciting, unique, novel or sexy,” Glass says on ImpactAlpha’s Returns on Investment podcast. “But when you think about it from an impact perspective, that’s exactly what it is.”

Glass points to issuers like Boston Medical Group, which helps keep low-income patients in Boston’s South End out of the hospital and in better health by providing housing, transportation, childcare, education and workforce development services. That makes their bonds a safer bet, because the institution is “so focused on population health management and trying the make the population healthy,” Glass says. In contrast, Glass is getting out of bonds issued by the Chicago Public Schools after the Chicago Tribune detailed a decade of sexual assault on girls by teachers administrator, coaches, security guards and other students. “Sexual violence becomes a material risk to bond issuers,” says Glass. “We’re using environmental and social frames because they’re material. Anything that impacts your profit and loss statement, impacts your ability to pay back your debt.”

Read on, and listen in, to “Impact investors start to make stodgy municipal bonds sexy,” on ImpactAlpha.

Dealflow: Follow the Money

Acumen’s KawiSafi Ventures raises $70 million for off-grid solar ventures in East Africa… The nonprofit venture firm raised the for-profit fund through its subsidiary, Acumen Capital Partners. KawiSafi already has invested $21 million in five companies, including d.light, a leading solar lantern and home-system provider; Bboxx, a pay-as-you-go solar provider; and Lendable, a Kenya-based consumer and small-business lender. “We have seen proven, profitable businesses emerge that are already transforming how low-income people access electricity,” said KawiSafi’s Amar Inamdar. The fund aims to provide clean energy to 10 million people and at least one million tons of carbon dioxide over 10 years. Investors include the Green Climate Fund, the Skoll Foundation and Chris Anderson, curator of the TED conference, who is married to Acumen’s Jacqueline Novogratz. Another investor is venture capitalist Steve Jurvetson, who founded Future Ventures after leaving DFJ in 2017. KawaSafi is structured as a 12-year fund, rather than the usual 10 years. More.

…and Acumen America backs MyVillage’s in-home early childcare model. MyVillage is trying to make quality early education programs affordable and accessible in rural “childcare deserts” in the U.S. The Bozeman, Mont.-based company trains and mentors in-home childcare providers and provides them with tools to start a licensed program, like free insurance, scheduling, billing and marketing support, as well as a network for families looking for care for their children. Acumen backed MyVillage’s $6 million seed funding round, alongside Jasmine Social Investments, Atlassian Foundation, Better Ventures, Kairos, Red Sea Ventures and City Lights Capital. The funding will help the company expand beyond Montana and Colorado. Keep reading.

“Alternative” credit bureau Credit Kudos secures £2.2 million. Fintech companies are using alternative credit-scoring metrics to drive financial inclusion and lower borrowing rates for consumers and small businesses. London-based startup Credit Kudos takes alternative underwriting a step further, using non-standard metrics to report borrowers’ creditworthiness to banks, lenders and other financial institutions. Co-founder Freddy Kelly launched Credit Kudos after facing difficulty getting an affordable loan because of a thin credit file. The company, which received approval from the U.K.’s Financial Conduct Authority in late 2017, is now looking to expand in Europe. Ascension Ventures led Credit Kudos’ £2.2 million ($2.9 million) funding round from its Fair by Design social impact fund, which invests in companies tackling the “poverty premium” that makes poor people pay more for basic goods and services. NFT Ventures, Entrepreneur First and angel investors also backed the round. More.

Signals: Ahead of the Curve

New Opportunity Zone rules add flexibility for businesses. The U.S. Department of the Treasury on Wednesday released a second set of proposed Opportunity Zone regulations. The rules could help Opportunity Funds raise fresh capital and communities organize around a policy that has had little guidance. In the new rules: More flexibility for funds to invest and reinvest capital; more ways for operating businesses to qualify for investment; and a rule that working capital can be used to develop businesses, not just real estate projects. The proposed regulations “remove the most obvious impediments that kept capital on the sidelines to date, especially around operating businesses,” said Economic Innovation Group’s John Lettieri in a conference call with reporters.

Agents of Impact: Follow the Talent

Soros Economic Development Fund invites proposals from U.S. and U.K. fund managers and financial institutions that support shared ownership and economic fairness in marginalized communities… Alex Papageorgis, ex- of Goldman Sachs, is the new head of quantitative investments at Ethic, the sustainable investing tech startup… The U.S. state of Virginia partners with LOCUS Impact Investing and Virginia Community Capital in an online Opportunity Zone marketplace… The Omidyar Network is recruiting a global vice president of finance and operations for education (who will report to Amy Klement)… The Mid-Atlantic Food Hub is hiring an executive director in Philadelphia… Register for the April 25 webinar from Dalberg and WOCAN, “Measuring Impact: Women’s Empowerment in Agriculture.”

April, 2019.