Investment Approach

This section is intended for educational purposes only. This information is not intended to represent investment solicitations or advice. *

We invest across the financial spectrum — both directly and indirectly — in public and private debt and equity. By using an array of financial tools, we support a diverse group of enterprises (including nonprofits, for-profits, and government entities). The diversity of our portfolio helps us minimize our risk (both financial and social), optimize our liquidity and manage our transaction costs. As illustrated in the interactive chart below, each investment type comes with a variety of decisions and trade-offs investors must make regarding risk and return, transparency, liquidity and more (click the boxes in the key to compare or isolate). Like many investors, we therefore use a variety of investment types and seek to support our mission through all of them.

 

 

Learn more about our approach to investing by downloading our updated Investment Policy Statement.

Direct Investment

Debt & Equity

When we invest directly in for-profit enterprises, we are able to deploy capital in the form of debt and equity, and we try to take advantage of the full range of investment tools available across the capital spectrum to find the best match for the enterprise’s capital needs. 

The kinds of enterprises we invest in tend to be:

  • Well-established, with a multi-year track record, a solid management team and a reliable operating model;
  • Influential, that is, in a position to have impact that goes beyond its geographic footprint or direct operations;
  • At the threshold of a substantial growth or change opportunity that will lead to greater impact, increased revenue and sustainable operations
  • (for equity/enterprise capital grants) Able to explain how a capital infusion from Heron and other providers will lead to more revenue from regular operations
  • (for debt) Able to link debt to strong social impact and a reliable, credible source of repayment.

Enterprise Capital Grants

Just like for-profit enterprises, nonprofits need equity-like capital to grow. We provide this type of capital directly to nonprofits through Enterprise Capital Grants (ECGs). The kinds of enterprises we invest in generally have the same characteristics as any of our direct investees, as noted above.

ECGs help capitalize nonprofit organizations that are undertaking major growth or change. These capital infusions have two primary goals: to scale social impact and to build enterprise health by improving the reliability of net revenue (earned and/or contributed).

Like any good investment, an ECG should trigger a social and financial return. But unlike our for-profit equity investments, we cede the financial returns from ECGs to our nonprofit investees. This allows us to support the financial and social performance of our investees and ensure that they make progress toward sustainable business models.

We consider these grants a part of our portfolio and track the progress of these equity-like investments into nonprofits as closely as any of our direct investments.

Read more about Investments from Heron.

Indirect Investment

Why do you make indirect investments?

By investing indirectly (i.e., through financial intermediaries), we can help capitalize a large number of enterprises relatively quickly, easily and inexpensively.

We invest indirectly through three different channels: (1) investment management firms; (2) private equity funds; and (3) customized investment vehicles.

Investment Management Firms

We work with experienced investment managers to buy stocks and bonds that trade on the public market. Hiring managers can be a cost-effective, highly liquid way to get portfolio exposure to the large companies that create and maintain millions of American jobs.

Within our public portfolio, we identify and invest in companies that are doing well for their employees and communities. By holding these companies, we hope to signal to other market actors that such behavior should be rewarded by investors. 

We work with managers using a variety of strategies such as:

  • Applying value screens to public companies (Aperio),
  • Invest along Heron’s customized screening criteria (State Street Global Advisors),
  • Integrate environmental, social, and governance factors into their investment decisions (Breckinridge). 

Our preference is to use separate account vehicles whenever possible, which provides greater flexibility and oversight into the buying & selling of securities or proxy voting.

We also work with investment managers (RBC and CCM) who compile portfolios of municipal issuances, mortgage-backed securities and agency-backed securitized pools (SBA-loan pools) that strive for positive social performance and stable market-rate financial returns.

Private Equity Funds

We invest in private equity funds that, in turn, invest in impact-oriented enterprises. Through partnerships like these funds, we can help capitalize relatively small enterprises without bearing all of the transaction costs ourselves. Many of our fund managers are experienced impact investors who are helping to develop and standardize impact metrics for the entire sector.

Customized Investment Vehicles

If we feel that we can add value to the market through customized investment products, we may consider developing investment with outside partners to structure such vehicles. Since 2005, we have been working with key research partners to develop the intellectual property for the U.S. Community Investing Index (USCII). The USCII is a positively screened index of equity securities of U.S. corporations that support their employees and communities through business practices geared toward long-term value creation. Heron has invested in the constituents of the index since 2005, and in 2012, it was licensed by State Street to create an investment vehicle available to other institutional investors.