Mission Investing in Practice
The Center is currently tracking the activities of foundations active in mission investing across program-related investments, market-related investments, socially responsible investments, and shareholder advocacy. Examples of mission investing may be found in the Spring Newsletter. Following are brief examples of practices of mission investors and other resources to be expanded upon:
How Grants and PRIs Can Work Together: The Mary Reynolds Babcock Foundation provides a helpful PRI Toolkit (PDF) that highlights how PRIs and Grants are complementary tools that achieve different goals. Link to an investment example (PDF) that involved an initial grant to Mountain BizWorks in 1998 and then in 2006 a $200,000 PRI as debt capital to expand Mountain BizWork's loan fund to meet growing demand for business loans and increase Mountain Biz Work's earned income and self sufficiency.
The Seattle Foundation began mission investing with an investment of $5 million with Community Capital Management (4Q09 Perspective), a fixed income money manager that creates and manages portfolios of mission-related investments. Community Capital Management's CRA Qualified Investment Fund seeks to provide current income consistent with the preservation of capital through investments in high-credit quality fixed income securities that support community development activities. The Seattle Foundation’s mission-related investments finance projects that improve areas in and around King County, Washington. Community Capital Management produces a newsletter, The Mission Based Investor (PDF), and highlights their purchase of a series of bonds, on behalf of the Seattle Foundation, that financed a loan to a skilled nursing community, the Regency Auburn Rehabilitation Center in Auburn, Washington. The community center is located in a moderate-income census tract in which 15% of the population lives below the poverty line, and 100% of the Center’s 93 beds are reserved for Medicare and Medicaid recipients.
The Baton Rouge Area Foundation (BRAF) began mission investing in 1997 when the organization felt compelled to take action to stop the increasing economic divide in Baton Rouge. Since then, the Foundation has made mission investments with its real estate portfolio, Commercial Properties Realty Trust. For instance, in order to maximize efforts to restore downtown Baton Rouge Commercial Properties purchased and renovated the abandoned Capitol House Hotel into the Hilton Capitol Center. Commercial Properties combined its own capital with tax credits and bank financing to create a $65 million hotel that had previously sat empty for 20 years. Almost simultaneously, Commercial Properties purchased Bon Carre Shopping Center, an abandoned one million square foot shopping mall that had become a breeding ground for crime, and transformed it into a technology, research, and business hub with over 30 companies and more than 5,000 employees. At 12/31/07, 17% of BRAF's assets were in mission investments and new investments are currently in proccess. examples of past and future examples can be found here (PDF).
Complex regulatory issues can affect a foundation’s ability and willingness to take up certain types of mission investing. The Unrelated Business Income Tax (UBIT) is assessed on business activities that are not directly related to the charitable function of a tax-exempt organization. Specialized tax and legal counsel should be consulted to reduce or eliminate UBIT. The Kalamazoo Community Foundation provides a one page brief (PDF) on some of the key issues.
A trend in mission investing is that foundations are engaged in launching new mission investment products. We look forward to hearing from the mission investing community on new products in the marketplace that are in the development phase or recently launched. The Center will highlight different products, such as:
State Street's U.S. Community Investing Index Strategy: In December 2009 State Street announced the launch of its US Community Investing Index Strategy that seeks to match the return and characteristics of the US Community Investing Index. The US Community Investing Index was developed by the F.B. Heron Foundation in conjunction with Innovest Strategic Value Advisors. The Index, and its related investment strategies, offer market rate opportunities to invest in those public companies who best engage underserved communities in the United States. It is a positively screened subset of S&P 900 firms that demonstrate a commitment to strengthening America’s underserved communities. The US Community Investing Index is a capitalization weighted index comprised of US large and mid cap listed equities. For inclusion, companies need to score above average on a series of screens that measure commitment and engagement with urban and rural economically disadvantaged communities and populations in the U.S. The screens are divided into three categories: a company's strategic alignment, workforce development/wealth creation, community engagement/corporate philanthropy (Bloomberg).
Triple Bottom Line Real Estate Fund of Funds by year-end 2009: Evaluation of a potential private equity real estate triple bottom line (financial, social, and environmental) fund-of-funds manager to invest in smart growth urban development projects is being evaluated. The fund should be marketed by year-end 2009. The product would be a vehicle for foundations and endowments to invest $5 - $10 million in a larger fund-of- funds. The fund-of-funds model would allow foundations to enjoy reciprocal targeted investing and select a region-specific area of the country for the funds to be invested.