Stearns is also very particular when selecting CDFIs because they are not secured. Nor does CDFI certification, a designation conferred by the federal government, say anything about the quality of an institution or its financial strength, she says. She looks for strong ratings under the CDFI Assessment and Rating System (CARS), which she helped develop and implement while at OFN. It is now an independent ratings service.
Boston-based Trillium Asset Management has used CARS as part of its community investment due diligence process for nearly 10 years, says Randy Rice, Trillium’s community impact investment manager and a director on the CARS board. It also meets with management teams, conducts site visits and looks for OFN membership.
Trillium has engaged in community investing for about 30 years and currently has $22 million of assets directly parked in these vehicles. Many clients allocate 2 percent to 5 percent of their portfolios to this space.
“It’s one of the reasons why clients come to us and stay,” says Rice, who notes that many people don’t want to manage these investments solo. Trillium’s portfolio includes approximately 30 U.S.-based community investments as well as a number of international loan funds including Shared Interest and Root Capital.
Some of its clients invest in CEI Investment Notes Inc. (CINI), part of the Maine-based CDFI Coastal Enterprises Inc. The notes help sustain small waterfront communities and also assist immigrant communities. “Two social issues at once is quite clever,” says Rice, a member of CINI’s advisory board.
Another Trillium offering, the aforementioned TRF, is helping food deserts—i.e. neighborhoods without access to fresh, affordable food. “They’ve really set the bar on supermarket financing and market financing,” says Rice, who notes that diabetes and obesity rates are higher in food deserts.
Trillium’s lineup also includes Mercy Loan Fund, which supports affordable rental housing and community services throughout the U.S., and Craft3, a CDFI that assists small businesses, sustainable agriculture and fish farms in the Pacific Northwest.
Fixed, Modest Returns
The standard return for five-year investments in Trillium’s community investment portfolio is 2.5 percent, says Rice. The firm has been making shorter-term loans (two to three years) to avoid locking clients into low interest rates if the market turns around and rates rise.
Pinsky notes that CDFI industry returns, which are fixed, range from 0 percent to 5 percent. “No one is going to get rich off CDFIs,” he says. “It’s wrong to get rich from those in poverty.”