We’ve recently published blogs that discuss the growth in social impact investing—from the state of Pennsylvania creating a $100 million impact investing initiative, to the Surdna Foundation redirecting $100 million of its $1 billion endowment to impact investing.
Social impact investing is increasingly being utilized by Community Development Financial Institutions (CDFIs). However, CDFIs are often limited in how they can use the funds. The capital may be restricted to a narrow geography, or constrained to certain programmatic areas. Therefore, even with the expansion of their sources of capital to encompass social impact investing, CDFIs continue to explore new avenues for capital diversification.
“We increasingly feel capital constrained,” says Mark Zandi, who sits on the board of directors for the Reinvestment Fund. The Reinvestment Fund is a Philadelphia-based CDFI with an ambitious agenda. Over the next year, they will fund over one million square feet of commercial development, and fund expansions of both health care facilities and clean energy production. These projects will impact low-income communities across more than ten states and the District of Columbia.
In order to achieve their community development goals, the Reinvestment Fund has turned to the private bond market. In May, the Reinvestment Fund entered the global capital market for the first time and released $50 million in medium-term S&P-rated bonds. The offer was fully subscribed within hours.
“I have speculated and fantasized about real access to the capital markets for decades,” the Reinvestment Fund CEO Don Hinkle-Brown says. “If there’s enough activity and we can build a marketplace, we can see whether people will pay for impact.”
The Reinvestment Fund offering follows one put forward by the national office of the Local Initiatives Support Corporation (LISC) in April. LISC issued $100 million in general obligation bonds to raise capital and accelerate its investment into distressed urban and rural communities across the country.
Investors in both bond offerings included insurance companies, pension funds and foundations. The Reinvestment Fund stated that a limited number of retail investors were also able to access its bond offering through broker-dealers.
This form of capital is particularly attractive to CDFIs because the bonds have no geographic or programmatic constraints. Both the Reinvestment Fund and LISC can use the funds across a range of community and economic development priorities.
“It has never been more important for us to invest in local economies so families can raise their standards of living,” stresses Maurice Jones, LISC president and CEO. “This new capital will not only help us fuel businesses, jobs and large-scale redevelopment efforts, but also help address the persistent social and economic challenges preventing people from maximizing economic opportunities.”
LISC plans to use a share of its bond proceeds to finance long-term, fully amortizing loans that are often hard for CDFI borrowers, like community development corporations, to access. The loans will also be used to refinance and wind down New Market Tax Credit transactions nearing the end of their terms.
It remains to be seen just how deep the private bond market is for community-based economic development.
“We’re hoping that five to ten years from now, the notion of CDFI and other community-based organizations issuing bonds will not be news,” says Jones. “The markets will become more familiar with us, and we will become more familiar with them.”
For now, the positive market response for these two offerings is encouraging for the work CDFIs are doing in economically distressed areas. In a time when the future of public sector funding is uncertain, the bond market offers a viable avenue for expanded private sector investment that can support and stimulate growth in inner cities across the country.
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