(Dow Jones) More of the wealthy are turning to community investments for some of
their financial and social returns.
Community investment programs channel loans to moderate-income
individuals and businesses that would not typically qualify for
traditional loans. They long have been an investment staple for socially
responsible investors, but they now are seeing more money come from
foundations and high-net-worth individuals, according to advisers and
community development financial institutions.
The demand is being driven, in part, by competitive returns on
what is seen as a fairly low-risk investment and by wealthy younger
investors who want to make a social impact while making money.
"These people are thinking about community investing not just
with their grant dollars with but with their investment dollars," said
Bruce Boyd, a principal at Arabella Philanthropic Investment Advisors in
Chicago. He says that while a family's 70-year-old patriarch may be
focused on his investments making money, his children are "thinking
about making money while doing good."
William L. Sutton, Jr. Director of Philanthropy, Wealth
Management Americas at UBS, says: "They see this and think, 'I can get a
decent return and the money can do work.'"
Investments range from something as simple as a certificate of
deposit in a bank or credit union that does community lending to
investing in specific funds developed by these lenders, which are not
tax free. "More people are looking into community lending," says Chat
Reynders, a financial adviser and CEO of Reynders, McVeigh Capital
Management in Boston.
Reynders notes that many community loan funds are currently
providing a better return than Treasurys, which have historically low
yields, and complement some traditional fixed income strategies.
For example, The Boston Community Capital's new Stabilizing
Urban Neighborhoods (SUN) initiative provides a 4.25% return on a
five-year commitment.
"We started raising funds in December, and folks have been
very excited," says Jessica Brooks, director of development for Boston
Community Capital. She says they've already raised about $30 million,
mostly from individuals with investments of $25,000 to $5 million.
[Individuals need to fit the definition of accredited investors to
participate, meaning they need to have net assets of at least $1
million, including their home, or individual income of at least $200,000
or combined income of at least $300,000 for a couple.]
Community loan funds, unlike CDs, are not insured but they
tend to have low default rates because of the typically intense scrutiny
of the borrower. Also, in a fund, the risk "is diversified across many
borrowers," says Steve Schueth, president of First Affirmative Financial
Network LLC, an advisory firm based in Colorado Springs, Colo.
The Calvert Foundation--a nonprofit corporation in Bethesda,
Md.--offers community investment notes with various terms and rates of
up to 3%, according to vice president Art Stevens. He says the program,
which provides cash to underserved communities, had its best quarter
ever ending March 2010, with gross sales of $16 million. He attributes
the growth to lower interest rates on other products, greater awareness
of the program and more demand from family offices.
Copyright (c) 2010, Dow Jones. For more information about Dow Jones'
services for advisors, please click here.
|
Dorothy 
