Grassroots Investing

Investing In The Common Good
Most loan funds have assets under management ranging from under $200,000 to nearly $1 billion. Since most are nonprofits, investors cannot make equity investments; equity is derived from either grants or long-term (10 years or more), subordinated, low- or zero-interest-rate debt. As investments, loans are not tax-deductible. CDFIs generally make interest payments quarterly or semi-annually, with principal due at expiration. Individuals usually invest directly or make program-related investments through their foundations.

CDFI loan funds, most of which are nonprofit, generally offer returns ranging from 1% to 5%, with 3% being common, Letendre says, adding that they also tend to be run by seasoned fund managers and organizations with experience. Interest usually rises as the term of the debt increases.

“Our expertise is not small business in the Pacific Northwest,” says Randy Rice, who works with Trillium Asset Management's community impact investing portfolio. “We like that CDFIs have the expertise to make these decisions. We do not have to do transaction-based due diligence, and we are not looking over every transaction that each CDFI does.”

While Trillium does due diligence on the CDFIs, it supplements its research with site visits. “We want to meet the folks," Rice says. “We’re interested in seeing what our clients' money is helping to create.”

Whether clients are attracted to geography or issues, Trillium can find a CDFI in which to place its clients’ money. Sustainable agriculture is popular right now, though it can mean anything to clients from sustainable fisheries or organic farms to grocery stores or food co-ops. In this area, Rice likes the Vermont Community Loan Fund, Coastal Enterprises Inc., the Reinvestment Fund (TRF) and the Cooperative Fund of New England.

Andrew McIntosh, trust advisor for high-impact investments at Loring Wolcott & Coolidge, also considers how useful a client's investment is to a particular CDFI. “If we have a client who only has $10,000 to $25,000 available for an investment in a CDFI, do we want to use a CDFI that has a $125 million loan fund? Or a smaller one, where the funds are a bit more meaningful?” he says. “It’s been an odd couple of years, when institutional funds have come into some CDFIs, so that our smaller investments are not quite so important to them. ... Not all, but a few, have reported this to us.”

The MacArthur Foundation's Schwartz says the most valuable money for a CDFI is not a short-term, market-rate investment.

“The most important kind of money for CDFIs to do their work is longer-term, patient, higher risk and frankly lower-return capital because that’s the capital that catalyzes everything else,” she says. “They are doing the innovation. Because it’s so innovative, so high-touch, because it’s mission-driven, it means that they are not just cranking out cookie-cutter deals.”