Dealflow | November 7, 2023

Social Finance taps donor-advised funds for impact-first investments

Roodgally Senatus and David Bank
ImpactAlpha Editor

Roodgally Senatus

ImpactAlpha Editor

David Bank

ImpactAlpha, November 7 — Boston-based nonprofit Social Finance is launching a fund to attract some of the big pools of capital locked up in tax-advantaged donor-advised funds. The Social Finance Impact First Fund aims to make it easier and more cost effective for DAF donors to access impact-first deals.

DAF managers and philanthropists “have struggled with how to put more philanthropic capital to work to advance their visions for change,” said Kirstin Hill, who joined Social Finance in September after 25 years at Bank of America.

The open-ended fund is looking to raise $250 million by the end of 2025 to invest primarily in emerging, private impact funds that support enterprises led by and serving individuals from marginalized communities, targeting low single-digit return on capital.

The Impact First Fund has secured recoverable grants from DAFs at Boston Foundation, Fidelity and Vanguard Charitable, and a direct commitment from a Combined Jewish Philanthropies’ DAF. 

Holders of DAFs are seeking to diversify their portfolios across investments that prioritize positive impact over financial returns, according to a study by The Rockefeller Foundation and Social Finance. 

Impact first

The Social Finance fund made a $5 million commitment to Black-owned Blackstar Stability’s Distressed Debt Fund, which is buying up predatory mortgage loans to help single-family homeowners transition to more stable, traditional mortgages.

It also invested in Candide Group’s Afterglow Climate Justice Fund to develop impact projects in climate-vulnerable communities. Candide’s Aner Ben-Ami called the fund “an exciting new pool of catalytic capital.”

Fund of funds

The diversified structure is making a comeback after falling out of favor because multiple layers of fees sapped returns. In legacy alternatives, a fund of funds manager might charge a management fee of 2%, plus 20% of the “carry,” or fund profits, on top of a similar fee structure for the managers of the underlying funds. As a nonprofit, the Impact First Fund is charging a management fee of only 1.5%, with no carry.

Follow the talent

Before joining Social Finance, Hill was chief operating officer for Merrill Lynch Wealth Management, which manages about $3 trillion in assets.

In March, Social Finance brought on Stephen Vicinelli, former deputy chief investment officer of TIFF Investment Management, and Catherine Dun Rappaport, ex- of BlueHub Capital, to design and manage the fund. Jess Brooks, ex- of Sunwealth, came on last month as investor relations vice president.

Vicinelli said the fund can “underwrite impact integrity.” Rappaport adds that the fund will collect credible data about the type and magnitude of impact and avoid being “onerous or extractive to the funds, enterprises, and communities in which we invest.”