Say you’re the new leader of a community foundation in a tourism-dependent town. It’s a beautiful place, but its economy produces some ugly inequalities: More than half the housing serves as second homes or vacation rentals for out-of-towners. The median home price is $540,000. It’s the sixth-most expensive area in the country in which to live. Yet median incomes across the region have dropped since 2000.
To Stacy Caldwell, CEO of the Tahoe Truckee Community Foundation, the solution was obvious: Start investing some of the foundation’s $25 million in assets in enterprises that would help locals thrive year-round. But that solution flew in the face of 100 years of common practice among community foundations: Invest endowments in Wall Street and spin off a small portion of the earnings for local grant making.
Riding a Wave of Change
In January 2015, Marjorie Kelly of the Democracy Collaborative wrote in the Stanford Social Innovation Review about a wave of community foundations using impact investing ― investing with an eye toward social benefits as well as financial returns ― to build community wealth.
She had just attended the inaugural session of the Community Foundation Circle, a support group for leaders who wanted their organizations to invest in local projects that dovetailed with their missions. Members of the circle, sponsored by RSF Social Finance (where I work) and the Business Alliance for Local Living Economies, met in person four times over an 18-month period to exchange ideas and get support from peers in moving their impact-investing programs forward.
Among the assembled leaders was Ms. Caldwell. In the aftermath of the circle session, she recruited people inside and outside the Tahoe Truckee foundation, including MBA students at the Presidio Graduate School in San Francisco, to envision impact-investing opportunities. The goal, she says, was to create more housing for area residents and build “an entrepreneurial economy that is both green and socially good.”
This process, along with ideas from experts who worked with the circle, informed her foundation’s plan to measure success not just by its own asset growth but also by the assets it attracts to the area.
The Tahoe Truckee foundation is now putting 2 percent to 5 percent of its assets into impact investing. Its new Housing Solutions Fund, created in June 2016, will support a regional housing council and invest in brick-and-mortar projects through an integrated capital strategy — a combination of loans, grants, guarantees, and other forms of financing tailored to each project’s needs.
From a Toe in the Water to Diving in Head First
For the Hamilton Community Foundation in Ontario, Canada, the impact-investing process began with orienting other charitable groups to capital tools they could use. Foundation staff observed that even some of the community’s larger organizations needed a better understanding of their own finances to take advantage of impact investments.
Overcoming that barrier is important because, following a five-year pilot period, the Hamilton foundation this year began actively seeking investment opportunities driven by community needs.
“Like many communities, we have a real affordable-housing need, so one of the things we are doing is asking some of our housing providers, ‘What would you need from us to accelerate your work? How can we set terms of the loan to try to meet your needs? Is there anything we can do that would allow you to move faster?’ ” says Annette Aquin, the Hamilton group’s executive vice president for finance and operations and a member of the Community Foundation Circle.
Charities that want to take on major projects like affordable housing often lack collateral and other requirements for traditional financing such as bank loans, Ms. Aquin says. “Our investment is the piece that allows them to meet those bank criteria. We stand in where no one else would.”
One result of her foundation’s outreach has been to begin or deepen partnerships with other important local institutions, including hospital systems, colleges, the Chamber of Commerce, and a large corporate employer. “When you can come to the table not just with a grant but with financing for a larger project that might not happen otherwise, people think about you for different kinds of projects. It’s exciting,” says Matt Goodman, vice president for grants and community initiatives.
Where a community organization once might have approached it for programming support after developing a project, the Hamilton foundation is now involved much earlier and plays a key role in planning, financing, and development. For example, it provided a loan for development and construction of a community food center where low-income people can come together to grow, cook, and share food and promote healthy eating.
Inspired by successes like these, the foundation’s board announced an ambitious new impact-investment goal in June, pledging to put 20 percent of the foundation’s assets — currently $180 million Canadian ($138 million U.S.) and growing — into impact investments by 2020.
Rallying the Community Around Social Investment
Concerned about federal, state, and local cuts to social programs and a drop in philanthropy during the recession, a group of 13 funders in Lincoln, Neb., commissioned a report five years ago on the city’s well-being in seven areas.
The Lincoln Vital Signs study, conducted by the University of Nebraska Public Policy Center and released in 2014, revealed some stunning statistics. Poverty in the region had increased by 48 percent since 2008, and the number of children in poverty had doubled in less than a decade. The poverty rate exceeded 40 percent in six Lincoln census tracts.
The Lincoln Community Foundation is playing a lead role in addressing these challenges through a public-private partnership committed to revitalizing two of the high-poverty neighborhoods. So far the foundation, which has about $100 million in assets, has invested in efforts to get feedback from residents about a master plan commissioned by neighborhood associations, businesses, and community members.
Barbara Bartle, president of the Lincoln foundation and a member of the Community Foundation Circle, said the master plan is probably a 15- to 20-year project. It aims to expand existing community programs; promote upward mobility through education, job skills, and workplace development; provide diverse and affordable new housing; build vibrant mixed-use neighborhood centers; and establish a community-development organization. Ms. Bartle thinks the foundation and other plan supporters will continue to invest as the strategy takes shape.
“Lincoln’s philanthropic community cannot single-handedly take up the slack, and neither can local government or the business community,” she says. “Complex issues require collaboration among all sectors of the community.”
Waves Start With Ripples
All the members of the Community Foundation Circle have faced resistance. Program staff can feel threatened when the walls between grant making and investment start disappearing. Boards often judge senior foundation leaders based on the growth of assets under management rather than the positive impact the foundation has on the community.
Investment committees set on sealing off assets from the mission pose a major barrier. They’re focused on making sure a foundation’s money makes more money — not on ensuring that an investment has a positive impact on the community. It’s hard to persuade a board member who spent a career on Wall Street that financial return is not the No. 1 goal.
The circle participants want to change this dynamic. As one member put it, “We can’t be content with just hoarding assets.” If a community foundation’s impact investing is successful, it will attract more assets over time.
The visionaries in this field are encouraging people to think of community foundations in a different way. They’re asking questions like these:
- What if, instead of looking to Wall Street to grow our assets, we looked at the community as an as asset worth investing in?
- What could our community look like if we deployed all of our assets locally?
- What if we could shift the culture to allow for testing new ideas — and accepting that some may fail? What kind of impact would that have?
Achieving this shift in perspective is a long-term project. The relative handful of small and large community foundations that are taking on local, mission-centric investing may open up new economic opportunities for communities across North America and inspire other foundations to follow suit.
Catherine Covington is senior manager of client engagement at RSF Social Finance and has served as the San Francisco-based nonprofit’s lead liaison to the Community Foundation Circle.
