Two big foundations joined with a major force in impact investing today to create a pool of funds — potentially totaling $100 million — to support child care, affordable housing, job training, and other social priorities in Chicago.
Called “Benefit Chicago,” the effort brings together the James D. and Catherine T. MacArthur Foundation, the Chicago Community Trust, and the Calvert Foundation and latches onto two of the hottest trends in philanthropy: the rise of donor-advised funds and an increased interest in impact investing.
Impact investing “has not been easily accessible for donor-advised fund holders,” said Terry Mazany, president of the Chicago Community Trust. “We make that possible in an easy way, connecting their dollars to the communities that are important to them.”
The goal is to allow donor-advised fund account holders to take part in a whole slate of impact-investing deals that have already been vetted rather than picking them out one-by-one.
Rather than pooling resources and making cash grants to nonprofit organizations, Benefit Chicago will make impact investments — such as low-interest loans or loans that don’t require collateral — to charities, for-profit social enterprises, social-purpose venture funds, and community lending institutions.
Calvert, which provides investment assistance to nonprofits and others interested in the social good, will issue up to $50 million in notes to support the effort. Investors can choose the duration of their investment, from one to 15 years, and the rate of return, which is currently 1 to 4 percent. The goal is to attract not only donor-advised fund account holders but also other investors throughout the nation who are interested in social investing and have an interest in helping people in Chicago.
The trust has committed to investing $15 million of its $900 million donor-advised fund assets to Calvert’s Chicago-focused fund. “This cuts across all of our existing donor-advised fund investment,” Mr. Mazany said. “Beyond that, it is an opportunity for individual donor-advised fund holders to contribute by purchasing notes.”
The Chicago Community Trust’s $15 million commitment will go toward the $50 million in notes offered by Calvert. The rest will be sold to other investors.
In addition, the MacArthur Foundation will put $50 million of its own cash in a separate organization that will pool the invested funds and choose recipients after getting advice from a community advisory board, members of which have not yet been named.
Less Legwork
A study commissioned by the trust and the grant maker found that Chicago organizations need up to $400 million in flexible funding over the next five years. The organizations found an ample supply of capital waiting to be deployed but said the city lacked of an efficient mechanism to make citywide investments.
Individuals or organizations interested in impact investing must contend with a lot of legwork. They must perform due diligence on potential investment recipients and craft each deal differently depending on an organization’s business plan. Julia Stasch, president of MacArthur, says that Benefit Chicago will attract investors because her foundation will scout out and research each deal and absorb losses from deals that don’t work. Investors are saved all of that work and shielded from risk, she notes, because they will invest in a portfolio with a set rate of return.
“We believe we can use this platform to capture the benefit of increased interest in impact investing, which just cannot be realized on a single transaction-by-transaction” basis, she said.
The platform is part of a larger impact-investing effort the foundation plans to announce in coming months.
Ms. Stasch was quick to add that the foundation will still make investments to advance its philanthropic mission around the world and that it will continue to make cash grants.
“This is not a replacement for traditional philanthropic grant making,” she said. “It’s meant to augment traditional philanthropic tools.”
Adds Heft
The three participants in the deal bring different strengths, according to Matt Onek, chief executive of the Mission Investors Exchange, a network of foundation and impact-investing managers. The alliance, he said, allows local donors to a community foundation to tap into a much larger impact-investing effort.
“You’re getting local expertise about where to have the best impact, and you’re giving local investors access to a national platform,” he said.
Plus, he said, at $100 million, the deal has some real heft behind it: “A typical community foundation wouldn’t be able to come out of the gate at a scale like this.”
The foundation expects to make its first investments in the fall.
