Impact Investing in Social Enterprises

On Tuesday December 7^th, Hub LA Founding Members, foundation leaders, and private investors gathered at the California Endowment in Downtown Los Angeles at the invitation of Academies for Social Enterprise and Hub Los Angeles for a seminar on Impact Investing. A generally accepted definition of Impact Investing is when “investments create positive social or environmental impact beyond financial return,” according to JP Morgan and the Rockefeller Foundation.

Betsy Densmore of Academies for Social Entrepreneurship introduced the seminar, presenting an overview of social enterprise, impact investing, and introducing the seminars panelists - you can take a look at her presentation by clicking HERE. The seminar revolved around presentations by three Angelinos who are leaders in the field, shaping the development of impact investing in Los Angeles and around the world.

Fran Seegull followed Betsy with a thirty minute comprehensive overview of the impact investment continuum, detailing characteristics and sharing examples of each. Fran is the Managing Director of Investments at ImpactAssets—a non-profit investment company that provides an impact investment asset management platform for investors and donor advisors seeking a blend of positive social and environmental outcomes, financial return, and risk management. She is also a Senior Fellow at USC’s Society & Business Lab at the Marshall School of Business.

A key take away from Fran’s presentation is that right now experts in the field are trying to define Impact Investing by creating a distinct asset class while others use the term as a lens to describe a continuum of investments. The continuum ranges from philanthropic grants on one end to market rate equity investments on the other. There is still a lot of room for growth in this field and scaling investments across the spectrum is needed.

Lisa Richter followed Fran, presenting the specifics of what a deal looks like. We learned about how and why foundations use Program Related Investments (PRIs) and other impact investing tools. Lisa’s presentation also included great examples of foundations making impact investments, which for many in the room helped to add a level of detail helping to make this complicated subject far more understandable. To review Lisa’s presentation click HERE. Lisa Richter is an independent consultant with GPS Capital Partners. She previously led fund management of the National Community Investment Fund, a national Community Development Financial Institution initially capitalized by Bank of America that placed over $20 million of equity and debt investments in development banking institutions.

Tina Castro wrapped up the presentations speaking on behalf of The California Endowment, where she serves as the Director of Impact Investments. Tina focused her presentation on her experience leading the Endowment’s effort to develop the CA FreshWorks Fund - “A $264 million public-private partnership loan fund to finance grocery stores and other forms of fresh food retail and distribution in under-served communities throughout CA.” To view a trimmed version of Tina’s presentation CLICK HERE.

There are a couple of big ideas to note from Tina’s presentation: first, the capital structure of the FreshWorks program. Tina and her team found a way for major banks to invest their obligated “Community Redevelopment” dollars as senior debt in a fund with a cushion of enhancements. In years to come, it is possible to project that this will be the safest and most efficient way for major financial institutions to move large sums of money into community-based projects. Also noteworthy in the structure is how New Market Tax Credits (NMTC) are integrated into the fund. No other fund is acting as a one-stop shop to bring the three key NMTC players together under one roof - no doubt this too is the wave of the future. The second big idea is related to the program structure. How is the Endowment going to spend $264 million dollars on low-margin grocery stores in under resourced communities? As you will see in the linked version of Tina’s presentation, the Food Access Organization plays a critical role in finding and vetting the local grocery owners who are ready for investment. It is exciting to see Emerging Markets Inc, stepping into that role for the state-wide FreshWorks program. We have no doubt that in the future we will be seeing more programmatic structures that include a savvy integrator role used to bridge grass-top and grass-root activities.

The seminar concluded with a robust discussion over lunch where partipants had the opportunity to share with the presenters what they are already doing and what stops them from doing more. As the seminar concluded, it became clear that there is a great deal of interest in impact investing, evidenced by one participant’s comment, “I run a 100 million dollar foundation and I have never heard about impact investing. I learned a lot today and am looking forward to learning more.” Stay tuned. There is more to come on this subject in the new year.