The Brief: Investing in HBCUs

Greetings Agents of Impact!

In today’s Brief:

• Investing in HBCU brilliance
• Livestock insurance for Africa’s smallholder farmers 
• Catalyzing housing innovation in California

Featured: Returns on Inclusion

The brilliant case for impact investing in America’s HBCUs. Four years into a social justice movement in which private and public funders vowed to prioritize communities of color, America’s 107 historically Black colleges and universities continue to lack reliable and affordable access to capital. The end of affirmative action in higher education admissions only increases the imperative to close the funding gap for HBCUs, argues Kresge Foundation’s Erika Brice in a guest post. “It’s a moment that calls for a response,” says Brice, an alum of Howard University in Washington, DC (for background, see “Social returns on investments in HBCUs rise as affirmative action recedes”). Kresge invested $3.5 million in Reinvestment Fund’s $25 million HBCU Brilliance Fund to help HBCUs restructure their balance sheets, diversify their revenues, upgrade infrastructure and enhance student services. The flexible, mission-driven debt capital represents an underwriting approach that Reinvestment Fund, a community development financial institution, says “better reflects the financial realities of the schools.” The Brilliance Fund will back real estate projects both on and off campus. “Our long term goal is to have HBCUs serve as community anchors,” says Reinvestment Fund’s Damien Wilson. HBCUs generate an estimated $14.8 billion in annual economic impact. 

• HBCU brilliance. As a group, HBCUs outperform other universities on economic mobility – measured by the fraction of a college’s students who come from the bottom 40% of the income distribution and transition into the top 60%. After an Agents of Impact Call last year, ImpactAlpha declared, “HBCUs have become hubs of talent, means of economic mobility, and sources of solutions of challenges from climate to public health.” The Biden administration has provided an estimated $7 billion to HBCUs, including $2.7 billion via the American Rescue Plan. Secretary of Education Miguel Cardona and Secretary of Agriculture Thomas Vilsack have called on 16 governors to increase funding, after their states underfunded 16 land-grant HBCUs by at least $12 billion between 1987 and 2020.
  
• Black tax. At more than $200 billion, the endowments of the top 10 predominantly white institutions are roughly 100x the size of the endowments of the 10 largest HBCUs, which total $2 billion. And HBCUs pay more for debt. Like majority Black municipalities, HBCUs are subject to a documented “Black tax” in bond markets, often paying as much as 11 to 15 basis points higher than institutions with similar credit ratings (watch this discussion of the Black tax on HBCUs, moderated by ImpactAlpha’s David Bank). “My education at one of the nation’s oldest and most prestigious HBCUs set me up for a successful and rewarding career,” says Brice. “If the underfunding gap isn’t repaired soon, future generations of Black students won’t have that opportunity.” She says philanthropists and impact investors can back the long-term financial sustainability and resilience of HBCUs through community development financial institutions and other community-minded intermediaries.
  
• Keep reading, “The brilliant case for impact investing in America’s HBCUs,” by Kresge’s Erika Brice. Investing in HBCUs is on the agenda at Mission Investors Exchange’s 2024 National Conference in Los Angeles, May 7-9. ImpactAlpha is the media partner for the event. Register today.

Podcast: Agents of Impact

Building equitable food systems with community and reparative capital. On this week’s Agents of Impact Podcast, co-host Sherrell Dorsey chats with Olivia Watkins of Black Farmer Fund. The fund aims to meet the modern needs of Black farmers and food entrepreneurs with affordable capital and technical assistance (for background see, “Black Farmer Fund is reimagining U.S. agricultural finance, on farmers’ terms”).

• Listen to the podcast on Apple, Spotify, or wherever you listen.

Dealflow: Adaptation Finance

Pula lands $20 million to offer livestock insurance to smallholder farmers. Insurance tech startup Pula launched in 2015 to provide crop insurance to small scale farmers, 80% of whom lack access to products that protect their incomes from extreme weather events, like drought. The Kenyan company partners with insurers to embed their policies into the costs of the farm inputs farmers buy – when a farmer buys seeds, for example, those seeds come with an insurance policy. Its Series B equity round will support its expansion into livestock insurance. Swiss impact investor BlueOrchard led the round. Along with existing investors, Gates Foundation, Kenyan venture capital firm Hesabu Capital and the IFC also participated (see, “The next big thing is climate adaptation for smallholder farmers“).

• Climate adaptation. Pula, along with Oko in Mali and ACRE Africa in Zambia, provide insurance to partially derisk agricultural production and help farmers who suffer bad seasons plant again. The approach spares households the domino effects of being unable to repay early-season loans for seeds and fertilizer, like losing their land, taking their children out of school or going hungry (listen to the podcast, “Acre Africa: Insuring farmers against crop failures and climate change”). Such “parametric” coverage doesn’t require farmers to make individual claims; rather they get automatic payouts upon specific weather events, like inadequate rainfall over a crop cycle. Africa is the least-insured region for farmers.
  
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SEAF provides impact-linked capital to Dawa Mkononi for pharmaceutical access in Tanzania. Impact investment firm SEAF (for Small Enterprise Assistance Funds) launched its Daraja Impact initiative with support from AlphaMundi Foundation and the Swiss Agency for Development and Cooperation to help Tanzania’s small businesses improve impact monitoring and reporting, especially for women and youth (disclosure: AlphaMundi is a sponsor of ImpactAlpha). Healthcare logistics company Dawa Mkononi is SEAF’s first investment through the initiative.

• Investing in health. Dawa helps more than 1,000 hospitals and other care facilities manage their drug inventory. It will use the investment to expand its partnerships to 3,500 health facilities by 2025. A portion of the funding must also be used to improve its impact reporting practices and capacity. SEAF will provide technical assistance to help the company with that process.
  
• Check it out. 

Dealflow overflow. Investment news crossing our desks:

• On theme for next week’s Earth Day (“Planet vs. Plastics”), Ocean 14 Capital invested in Novelplast, which recycles industrial and consumer plastics as resin that can be used for industrial sheeting, fibers and strapping. (Ocean 14)
  
• Detroit-based KODE Labs raised $30 million in Series B financing for its building efficiency management software. (KODE Labs)
  
• Berlin-based Zolar secured €100 million ($106 million) in debt from BNP Paribas to originate residential solar loans. (Sifted)

Impact Voices: Catalytic Capital

How innovative financing structures can help close California’s housing gap. The way housing is financed and constructed in the United States has changed little in decades. The result: skyrocketing costs and a nationwide housing shortage. California alone needs an estimated 2.5 million new homes by 2030, with 40% of those units for lower-income households. More than 100 policies adopted by the state in recent years to unwind exclusionary land use practices and increase housing production are unlocking development potential. Private investors and philanthropists have a big role to play in “catalyzing innovative approaches to financing housing to increase the pace of development, including increasing access to capital, reducing financing costs, and seeding novel approaches,” writes Kevin Schuster of the Chan Zuckerberg Initiative in a guest post on ImpactAlpha. 

• Housing innovation. CZI’s grantmaking supports pro-housing organizations fostering structural changes and provides risk-tolerant, patient capital to pilot and scale models for housing production and preservation. Grantee South Los Angeles Connecting Capital and Community, led by community development financial institution Genesis LA, is testing new state laws enabling low-density infill housing models. The Community Investment Guarantee Pool aggregates guarantees from foundations, including CZI, to de-risk affordable housing (for background, see, “How loan guarantees and catalytic capital can amplify federal ‘green bank’ funds”). 

• Call for innovation. CZI is today launching its first request for applications for its Innovative Housing Finance initiative to support mission-driven lenders addressing the state’s housing gap. CZI is looking to invest in “funds held by intermediaries with approaches to bring down the cost to produce and preserve housing, unlocking or leveraging other funding sources, or funding housing project types with unique financing barriers,” says Schuster. That could include novel uses of surplus or underutilized land, cooperatives or community land trusts, and vehicles to bring in capital from pension funds, banks, hospitals and others. “The scale of California’s housing shortage relative to our program budget necessitates partnering with others and incentivizing leverage,” Schuster says. 

• Read Schuster’s full post.   

Agents of Impact: Follow the Talent

Alison Lingane, who co-founded Project Equity with Hilary Abell in 2014, is transitioning from her role as chief innovation and investment officer to senior advisor to Project Equity’s Employee Ownership Catalyst Fund… Connectivity Capital is hiring a project manager in Washington, DC… MacArthur Foundation is looking for an awards manager in Chicago… Also in Chicago, Builders Vision is recruiting a vice president for impact measurement and management… Chicago TREND is hiring a senior property manager.

JBS USA seeks a climate services global director… Maycomb Capital has an opening for an investment associate in Denver or Brooklyn… Big Society Capital seeks an assistant legal counsel in London… Finance in Motion is on the hunt for a fund manager… Temasek Trust, DBS and UBS Optimus foundations are launching a catalytic capital digital marketplace of more than 70 impact investing opportunities from 40 countries… This year’s US SIF Sustainable Investing Forum will take place in Chicago, June 24-26.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– April 16, 2024