Community development financial institutions, or CDFIs, were perhaps the original impact investors in the U.S., bringing needed investment into low-income urban and rural communities. About 900 such CDFIs now have around $108 billion in assets.
The Reinvestment Fund, based in Philadelphia and operating in 10 states and the District of Columbia, is helping open a new source of capital for such CDFIs. In May, the Reinvestment Fund successfully launched a $50 million public bond offering to finance childcare centers and charter schools, grocery stores and health clinics, energy efficiency upgrades and small businesses in low-income communities across the U.S. Seven anonymous private investors, primarily insurance companies, bought the Philadelphia-based community-development finance institution’s S&P-rated, unsubsidized bonds on the open market.
In part for this achievement, the Reinvestment Fund took home the GSG Honor for impact investing asset manager of the year at the Chicago summit of the Global Steering Group for Impact Investment, an umbrella for the national-level advisory boards originally convened by the (then) G-8 in 2013.
“After decades of effort and many false starts there is now a solid bridge to the capital markets for US community development finance organizations like CDFIs,” said Don Hinkle-Brown, President and CEO of the Reinvestment Fund, last night has he accepted award on behalf of the firm.
Hinkle-Brown shared his acceptance remarks in full with ImpactAlpha:
We are merely a representative of new trends shaping our field.
After decades of effort and many false starts there is now a solid bridge to the capital markets for US community development finance organizations like CDFIs. This is just a beginning — and there are years of more work to do.
I will offer a few observations from our brief time in the markets, and a few predictions.
The Community Reinvestment Act does not provide below-market pricing for capital. Our bond proved that, but I suspect it has been the case for many years.
Capital markets are not intelligent, how could they be when we see so many broken markets? But markets are smarter than rating agencies.
Econ 101 was right — market access is more expensive in reverse proportion to the amount of widely-held data on asset performance.
Philanthropy that offer guaranties, without having a credit rating, is both fiscally imprudent and wasteful. The markets don’t underwrite counter-party risks, they expect that homework will be done for them in advance.
Institutional investors will compete for high quality impact investment opportunities, especially when their [human resources department] links incentive compensation to impact investing achievements.
A strong balance sheet got to market before a strong securitization — organizational strength can organize the market.
1––Impact Investing, upon reaching some future critical mass, will make non-impact financing seem needlessly risky, antiquated, and questionable as to in its fiscal appropriateness. The ‘prudent man’ will be an impactful man.
2––I am convinced we will overshoot in our focus on the supply side of impact investing, and wake to a demand-side problem. Foundations must fund community organizing and municipal resource strategies — as those are the seeds to neighborhood change and demand for domestic impact investments. These are also the means to keeping the public sector involved and their subsidies at the table.
Thank you all for this honor, on behalf of scores of Reinvestment Fund employees in Philadelphia, Baltimore and Atlanta working hard to connect capital to underinvested communities, on behalf of the 865 investors at the Reinvestment Fund, and on behalf of several anonymous muni-bond market investors — we all thank you for this award.