The Brief | June 24, 2024

The Brief: Surdna Foundation’s Don Chen on finding ‘impact alpha’

ImpactAlpha
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ImpactAlpha

Greetings Agents of Impact!

In today’s Brief:

  • Surdna Foundation’s Don Chen finds ‘impact alpha’
  • Calvert’s green building notes
  • Bolivia’s gender bond 
  • Converting methane to graphite for batteries

Surdna Foundation’s Don Chen: High-risk, high-reward impact investments are paying off (Q&A). When Impact America Fund launched in 2014, the first-time fund manager with a focus on creating economic opportunities in marginalized communities was perceived as too risky by some traditional investors. Surdna Foundation saw an overlooked opportunity in the Black women-owned VC. The New York-based foundation backed Impact America’s two funds with program-related investments, a type of philanthropic investment that emphasizes the impact potential of the strategy. Last year, when Impact America announced its $112 million third fund, Surdna was again a limited partner, this time via a “mission-related investment.” With an MRI, as they are known, the foundation’s investment team was placing as much confidence in the fund’s financial prospects as in its impact. The graduation of Impact America Fund from a PRI to an MRI is part of an intentional effort by Surdna to dispel conventional perceptions of risk in high-impact strategies. Impact funds led by women and people of color aren’t high risk, says Don Chen, who has led the foundation since 2018. They’re ”dramatically overlooked“ and represent “tremendous opportunities,” he tells ImpactAlpha in a wide-ranging interview on the foundation’s evolving impact investing strategy.

  • Impact alpha. Chen has the receipts. The foundation’s $100 million carveout for impact investments (split roughly 80/20 between MRIs and PRIs) has grown to $170 million, counting mission-aligned investments in public equities and other strategies from the broader endowment. Along with Impact America, the portfolio includes Founders First and Blackstar Stability Fund, as well as the first two funds from Illumen Capital, Vamos Ventures and Impact Engine. The kicker: The impact portfolio, consisting largely of private market MRIs and PRIs, has outperformed Surdna’s broader endowment over a trailing five-year period, Chen reveals to ImpactAlpha. Chen says the foundation is going “full steam ahead on our impact investing.”
  • Rights and responsibilities. Chen, the co-chair of the US Impact Investing Alliance’s President’s Council, says politically motivated efforts to undermine diversity, equity and inclusion, as well as the environmental, social and governance dimensions of investing, run afoul of Constitutional rights and free speech, and inadvertently shine a light on the importance of such strategies. Conservative activist Edward Blum has sued the nonprofit arm of Founders First in a suit similar to the one Blum has brought against Fearless Fund and other organizations providing grants to Black entrepreneurs. “Philanthropic freedom, including the right to support certain populations and programs, helps everyone in America prosper,” Chen tells ImpactAlpha. Investors, he says, have the right “to take in information that can help them address systemic risk.” 

Dealflow: Green Buildings

Calvert Impact rolls out second ‘cut carbon note’ for green building upgrades. Calvert Impact launched its “cut carbon notes” last year as a way of raising capital to help green commercial and multifamily buildings. The notes back bonds and other financial instruments issued under state-supported Commercial Property Assessed Clean Energy, or C-PACE, financing programs. C-PACE allows building owners and developers to secure upfront financing for green construction or energy upgrades, then repay the debt over time through “benefit assessments” on their property’s tax bill. Calvert is looking to raise $18.8 million through its second note series to invest in projects like healthcare company LactaLogics’ new headquarters in Port St. Lucie, Fla.

  • Democratizing impact. The notes, which require a minimum investment of $1,000, are the first offering to give everyday investors access to the C-PACE funding market (see related, “Impact products aim to shift portfolio allocations in bonds, private credit and cash“). They’re the latest offering from Calvert that makes impact investing accessible to retail as well as institutional investors. The firm has sold more than $2.5 billion community impact notes since it debuted them nearly two decades ago. Calvert’s initial cut carbon notes issued last year raised $30 million from 70 investors as part of a planned $400 million series.
  • Greening buildings. Buildings are responsible for 40% of global carbon emissions, mostly from the energy used to heat, cool and power them. Calvert-backed Climate United, a coalition that includes community lender Self-Help and multifamily affordable housing financier Community Preservation Corp., was awarded nearly $7 billion from the Greenhouse Gas Reduction Fund earlier this year to help local lenders finance green upgrades for consumers, small businesses, schools, multifamily housing and community infrastructure.
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BancoSol floats $30 million gender bond in Bolivia. The bond, issued on the Bolivian Stock Exchange, is the first gender bond in the South American country. IDB Invest has guaranteed 50% of the AAA-rated issuance. Proceeds will support BancoSol’s Avanza Mujer program, which aims to reach more than 4,500 women-led enterprises, including underserved and rural borrowers in Bolivia’s Amazon region. More than half of Bolivia’s female entrepreneurs face limited or no access to credit. As the largest Bolivian microfinance institution, BancoSol could “achieve impact at scale” and generate greater financial inclusion” said Marisela Alvarenga of IDB Invest, which will offer an extra $200,000 if the bank meets its portfolio objectives (see related, “With incentives, Roots of Impact helps companies link impact and finance“)

  • Gender bond market. Gender bonds are becoming a preferred strategy for ushering capital to underserved women in emerging markets. IDB Invest has supported the first gender bonds in Panama, Ecuador and Colombia. Pro Mujer has issued several listed gender bonds in Argentina. IIX in Singapore has been key to proving the market: it has raised more than $230 million since 2017 through its Women’s Livelihood Bond series. 

Dealflow overflow. Investment news crossing our desks:

  • Oakland, Calif.-based Molten Industries raised $25 million from Breakthrough Energy Ventures, Sozo Ventures and others to convert methane to graphite for use in US-made batteries. (Molten Industries)
  • TBC Bank Uzbekistan secured a $10 million line of credit from responsAbility to expand microlending and financial inclusion beyond its base of 15 million customers. (responAbility)
  • Dutch Impact fund of funds manager Wire Group invested in EcoEnterprises Partners’ fourth fund to support nature-based livelihoods and ecosystem protection in Latin America. (Wire Group)
  • Rubio Impact Ventures, INH and Rockstart backed Dutch startup Prêts, which is launching a service to help homeowners identify and price home energy upgrades. (Rubio Impact Ventures)

Agents of Impact: Follow the Talent

Community Investment Management hires Ravi Vukkadala, previously with Northern Arc Investment Managers, as its country director in India… Community Capital Management adds Allison Brink, formerly with Great Lakes Advisors, as head of distribution; and Julia Winck, a recent Northwestern University graduate, as impact research analyst. CCM promotes Jessica Botelho to co-chief impact strategist, and Adele MacEwen to impact and financial data manager.

The California Endowment appoints Kelli Washington, formerly with Cleveland Clinic, as chief investment officer… FedEx names Karen Blanks Ellis as chief sustainability officer, replacing Mitch Jackson, who retires at the end of June… Phenix Capital Group is recruiting a content program manager in Amsterdam… Aligned Climate Capital is on the hunt for a director of operations in New York or Los Angeles.

Sorenson Impact Foundation is accepting applications until Friday, July 12 for grant or program-related investment to organizations and initiatives focused on employee, home and community ownership… New York City’s Economic Development Corp. and Department of Small Business Services select Tuatara Capital to manage a planned $20 million to $30 million loan fund to support equitable growth and access to capital in the city’s cannabis industry.

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

Thank you for your impact!

June 24, 2024