How Managing Wealth Differently Can Contribute to a More Equitable Recovery – Next City
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How Managing Wealth Differently Can Contribute to a More Equitable Recovery

(Photo by M. B. M. on Unsplash)

White households hold 85 percent of all wealth in the country, including 92 percent of all stocks and 80 percent of all real estate, according to Federal Reserve data.

With the COVID-19 pandemic’s racially disparate death rates to uprisings sparked by ongoing deadly police brutality, all disproportionately affecting black communities, there may be no better time to rethink how that wealth gets managed and how it might be managed differently in order to contribute to a different social outcome.

Legislators and presidential candidates have proposed a wealth tax, at federal as well as state levels. But short of that, there are alternatives to manage wealth in ways that acknowledge the unjust history of wealth distribution in the United States.

Jina Penn-Tracy runs Minneapolis-based Centered Wealth, a fee-based financial advisory firm. Wealthy households as well as institutions like foundations, universities, or public pension funds retain these firms to manage their wealth or endowments.

Despite all the money involved, and what might get portrayed in the media or in advertising as a competition for which investment advisors can provide the highest returns, it’s a remarkably personal process. Households tend to stick with advisors they know and like personally, as do trustees of foundations, universities, or pension funds. It takes work to break down those social networks, as some are starting to do.

Penn-Tracy, who herself is white, is one of a growing number of financial advisors who are appealing to clients based on her willingness to guide investments in ways that acknowledge unjust history behind racial wealth disparity — the history of slavery, Jim Crow, redlining and continued discrimination that has kept wealth mostly in the hands of white people and away from others.

“It’s a huge movement for young investors, especially young people from wealth who are looking at how their families made their money and [asking] how do I deal with family money or my money and how do I invest that in a way that makes a difference for people who have potentially been harmed by my own family’s wealth?” Penn-Tracy says. “Racism and injustice will not end until white people of privilege decide to do something about it.”

Over the past two years, Penn-Tracy estimates her Minneapolis-based financial advisory firm has doubled in size, in terms of the assets its clients have placed under its advisory services. With those assets, Penn-Tracy helps her clients find investments that earn them some financial return but only when coupled with some kind of measurable social impact, like investments in environmental sustainability, low-income housing, or black-owned businesses.

But you can’t just walk into a black neighborhood as a stranger with a pile of investment dollars and expect people to trust you. Penn-Tracy needed to put in the work to build connections.

Fortunately, Penn-Tracy is not the only one thinking about how to build those connections. Black communities and other historically marginalized communities are themselves building ways for investors from within and without to join them in responding to generations of economic exclusion. Investment capital can’t solve everything on its own, but black communities are finding roles for it in their responses to historic and ongoing injustice.

Formerly incarcerated people in Chicago are using a newly created legal framework to help raise startup capital for their new worker-owned food business. Residents of historically-black West Oakland are using a similar legal framework to raise investor capital for acquiring and managing cooperatively-owned properties. Workers in Cleveland and other cities are working with outside investors to acquire existing businesses from their owners. Loan funds from Boston to Minneapolis to Native communities are sharing legal documents, networks and know-how to engage investors. Equal Exchange, an employee-owned food and beverage company, has been teaching other employee-owned firms to raise capital from investors, like it has for decades.

Penn-Tracy occasionally invests her clients’ money directly into opportunities like these, but usually one of the first places Penn-Tracy goes to start moving capital is the CRA Qualified Investment Fund. Founded in 1999, it’s a mutual fund, very similar to those you might find in your 401(k) or IRA portfolio. You can buy shares in the fund directly, on the NASDAQ stock exchange, where the fund is currently trading for just under $11 a share.

Penn-Tracy says her clients gain a few different benefits from buying shares in the CRA Qualified Investment Fund. First of all, since it’s publicly traded on a major stock market, Penn-Tracy can move her clients’ dollars into and out of the fund at basically the drop of a hat.

Second, as a mutual fund, the CRA Qualified Investment Fund pools investor dollars and makes investments according to a pre-defined strategy. In this case, the fund invests in projects or businesses that would qualify for credit under the Community Reinvestment Act, or CRA, the 1977 law requiring banks to meet the credit needs of the low-income communities where they take deposits. The fund itself isn’t subject to that law, but many of its investors are actually banks themselves who are subject to that law and they can get credit under the law for investing in the fund.

In order to meet the demands of investors, mutual funds have to constantly prove they are delivering on their value proposition. Sometimes mutual funds get criticized for charging high fees, which get taken out of investor returns. To justify its management fees, the firm behind the fund, Community Capital Management, spends a lot of time compiling data on the homeowners, businesses, and economic revitalization projects that benefit from its investments.

Sometimes the CRA Qualified Investment Fund buys bonds from economic development agencies, housing finance agencies, or even school systems and institutions of higher education. Sometimes the mutual fund participates in the secondary market, meaning it buys all or part of home mortgages or small business loans originally made by someone else, like a community bank or credit union, or a community development financial institution.

“We run a proprietary database for everything we own and everything we’ve ever owned,” says David Sand, chief impact strategist at Community Capital Management. “We look at the underlying composition of everything we own, and we look at the use of proceeds, so we know by geography and impact theme where our money is going.”

Community Capital Management has 18 “impact themes” that it tags on every project or loan in Sand’s database, from affordable housing to economic inclusion to environmental sustainability. It periodically updates and refines each theme. Most recently, the COVID-19 crisis compelled Community Capital Management to add responding to a global pandemic as part of its “disaster recovery, resilience and remediation” theme.

Many COVID-19 recovery investments or loans are yet to be made, but Sand wants local agencies and financial institutions to know that if their COVID-19 response efforts need an infusion of cash, at least one mutual fund is standing ready to invest.

“It’s not like there’s a coronavirus playbook, but we’re saying we have an appetite, we have demand,” Sand says. “We want to signal to the sell side so they know that if they have capability, if they are thinking about these bonds or if they’re getting ready to originate these types of loans, they know there’s a buyer.”

With its database and reporting capability, Community Capital Management can put out quarterly and annual reports for investors on social impact, in addition to financial returns. Penn-Tracy may call with a request on behalf of a client curious about the impact of his or her wealth.

Penn-Tracy says she has had clients invested in the CRA Qualified Investment Fund for at least ten years. In addition to her growing client base, Penn-Tracy says each of her clients tends to move more financial assets under her firm’s advisory services over time. So it’s useful to have a quick and easy option to hold some of those dollars as they come to her firm.

“The community investment piece has really come to the forefront and as the millennial generation has gotten older and more active in investing, issues of social and racial equity have become more of an issue for investors,” Penn-Tracy says. “And that’s a pretty rare thing to have access to focusing on racial disparity or rural communities all in one place.”

All that said, the CRA Qualified Investment Fund has only $3 billion invested into it. But over the past 20 years, Sand says, he’s seen plenty more investment funds emerging that share similar or overlapping social and environmental goals — they like to call themselves “impact investors.”

According to the Global Impact Investor Network, which tracks the growth of impact investing annually, over 1,340 organizations had $502 billion in impact investments in their portfolios as of April 2019 — an amount that has grown ten-fold since 2013. Not all of those dollars are invested with an eye for racial justice or community development, however.

For better or worse, investors drive a lot of conversations by simply broadcasting what they’re interested in. Sand’s hope is that between funds like his and advisors like Penn-Tracy, some of that power can continue to pull local governments and local financial institutions in the direction of something other than maximizing profits for investors — perhaps in the direction of addressing generations of violently enforced racial wealth inequality.

“We’re able to see the chicken and the egg between the gatekeepers on the sell side and the buy side, so we think there’s a model for showing interest to local agencies and others on sell side about our interest on the buy side,” Sand says.

Over time, more and more investors and financial professionals are coming around to realize that there is a different way to manage wealth, including now in the context of recovering from COVID-19, and recovering from an outbreak of uprisings sparked by the police killing of George Floyd and other recent killings of unarmed black people.

Penn-Tracy used to feel like a total outlier, but as she sees it, the 2008-2009 financial crisis, Occupy Wall Street, and continued reporting on racial disparities in the economy are adding up to more business for her firm and more firms like hers.

“I’m really hoping that the crisis that we’re heading into has a similar blossoming effect in terms of how people put their money out into the world and how it contributes to the problems we need to solve,” Penn-Tracy says.

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.

Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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