Assuming you have any, when was the last time you checked on where your retirement savings are invested? The answer is probably the day you set it up, if at all. And yet, there goes your money, every paycheck, and some of your company’s money if you’re even luckier, whisked around the world to somewhere probably very far away. Out of sight, out of mind. There’s a whole industry entrusted to take $25 trillion of other people’s money and find the best returns for it. What if that same industry existed for making impact investments in communities that have long been ignored by other investors? In communities right in our backyards.
That’s the promise of Benefit Chicago, a $100 million fund announced this week by Chicago Community Trust (CCT), the MacArthur Foundation (which also provides financial support to Next City) and the Calvert Foundation.
“There are more individuals and institutions of all kinds looking for ways to invest for impact, and looking for ways in particular that not only have positive impact, but ways that are very deeply meaningful to them,” says Debra Schwartz, who leads MacArthur’s impact investing work. “One of those ways is to invest in your home, in your community. Benefit Chicago is an effort to make that possible in a simpler and more accessible way than ever before.”
When it comes to working with individuals and institutions looking to get into impact investing for the first time, one of the biggest challenges is matching the investment terms on the investor side with the capital needs on the impact side. Social enterprises and nonprofits with essentially zero marketing budgets go out and try to raise capital, talking to investors one by one. Each investor ends up having a slightly different preference, each may or may not know how to invest, or may not be eligible to make the kind of investment that’s needed.
“At the end of the day, they spend all this time trying to cobble together relatively modest amounts of capital and not nearly as much time and effort doing the really important work of fulfilling their mission,” Schwartz says. “It’s not just about a dating game here, it’s not just about showing them to each other. There are structural mismatches.”
From the joint MacArthur-CCT report, “Bridging the Gap: Impact Investing Supply and Demand in the Chicago Region”
Calvin Holmes, president and CEO of Chicago Community Loan Fund (CCLF), a mission-driven, nonprofit community lender founded in 1991, agrees.
“Many of the impact investors and traditional social sector investors invest for very short time horizons, and the problems that we are trying to solve have taken generations to develop. It takes long-term money to fix problems that were long in the making,” Holmes says. CDFIs (community development financial institutions) like CCLF are among the organizations planning to seek investment from Benefit Chicago.
Benefit Chicago is designed to be able to accept shorter-term investments from interested impact investors while still making those potentially much-longer-term investments to nonprofits and social enterprises in the Chicago region. Fifty million dollars in seed capital from MacArthur into Benefit Chicago helps provide flexibility to overcome the mismatch.
“We expect Benefit Chicago will have the capacity to put 15-year money on the street, which we think is fantastic,” Holmes adds. All Benefit Chicago investments will be in the form of debt or equity; no grants will be made out of the fund.
“We’re trying to, with this approach, make it simple for investors of all kinds to participate, make sure there’s powerful impact that’s meaningful to them, and also to make sure that the capital that is deployed is really useful to the social sector organizations, tailored to their particular needs,” Schwartz says.
To make it accessible to wider swaths of investors, Benefit Chicago will take advantage of Calvert Foundation’s Community Investment Note, which Calvert has used since 1995, raising more than $1 billion in capital from more than 13,500 investors, investing in a number of causes, ranging from community development to education to affordable housing and more.
Whether online through Vested.org ($20 minimum), direct via an application and check mailed to Calvert ($1,000 minimum), or through a brokerage account ($1,000 minimum), investors may request that Calvert target their Community Investment Note to Chicago. Calvert expects to raise $50 million in capital for Benefit Chicago through Chicago-targeted Community Investment Notes.
Some of that additional $50 million will come from CCT’s donor advised funds (DAFs).Like most community foundations, CCT manages a portfolio of DAFs. Individuals who don’t have time or interest or resources to set up a small family foundation, including many small business owners, often establish DAFs at community foundations or other wealth management firms like Fidelity. DAF account holders make contributions, and the DAF manager essentially holds on to the money and makes grants with it at the request of DAF clients. A DAF provides individuals an easy way to get the charitable contribution tax benefit now while worrying about where the money eventually goes later.
In 2014, there were 239,293 DAF accounts in the U.S., containing about $71 billion dollars. Just shy of 22 percent of that ($12.5 billion) was granted out by request of DAF clients, leaving the rest invested in mostly the same things one’s retirement account might be invested in. Now, CCT’s DAF clients may request to store their dormant DAF contributions in Community Investment Notes that fund Benefit Chicago.
“We agreed with CCT in understanding that community foundations play a valuable role in advancing the philanthropy and well-being of their regions, but they weren’t doing as much as they could to facilitate impact investing through DAFs,” Schwartz explains. “What CCT has made it possible to do now is check a box to be a part of Benefits Chicago.”
It’s also a first for Calvert, which has worked with community foundations in the past, and also with other DAF managers on a national scale to include their Community Investment Note as an option, but this is different. “We’ve never had a place-based investment listed and included as a standard DAF allocation through a community foundation before. This is really a first,” says Margot Kane, vice president for strategy at Calvert Foundation.
CCT’s first $15 million investment in Benefit Chicago comes from a general DAF pool it manages. Calvert and MacArthur envision that other community foundations may follow suit with their DAFs in their regions.
In addition to $50 million in startup capital, MacArthur is also contributing its expertise in impact investment management: 30 years of experience and $500 million in impact investment assets deployed around the world. Community foundations and individual investors generally don’t have that experience, Schwartz says, but private foundations like MacArthur are around that may be available to play the underwriting role. MacArthur will staff Benefit Chicago, which will also have its own three-person board and a nine-person community advisory council to guide its work.
“This is not a fund that exists to further MacArthur Foundation’s specific programs. This is an effort that is geared towards addressing urgent needs and priorities across the region,” Schwartz says. “There will be many more diverse kinds of organizations receiving financing then we’ve ever done before.”
The Equity Factor is made possible with the support of the Surdna Foundation.
Oscar is a Next City contributing writer, and was a Next City 2015-2016 equitable cities fellow. A New York City-based journalist with a background in global development and social enterprise, he has written about impact investing, microfinance, fair trade, entrepreneurship and more for publications such as Fast Company and NextBillion.net. He has a B.A. in Economics from Villanova University.