Field Notes: U.S. Community Investing Landscape

GIIN’s latest report dives deep into the U.S. Community Investing field to understand the needs of investors and product managers.

Scaling U.S. Community Investing: The Investor-Product Interface” is a comprehensive report about the U.S. Community Investing (USCI) field by Global Impact Investing Network (GIIN) and Carsey School of Public Policy. The purpose of the report is to raise greater awareness and facilitate alignment of the needs of the stakeholders in the field and accelerate the flow of capital. As writes Amit Bouri, CEO of GIIN:

Overall, the research identifies and describes the major types of USCI investment products currently available, the parameters used by different types of investors to evaluate investment opportunities in the space, and the barriers to and opportunities for increasing investment.

Ultimately, there is a clear need for more coordinated efforts around broader ecosystem challenges, such as platform development and standardization, as well as the general marketing of USCI. We hope this research will open the door to more direct conversations between investors and USCI product managers to enable the development of products that meet both their needs—and, more importantly, the needs of those marginalized communities that U.S. Community Investing intends to serve.

Community development financial institutions (CDFIs) are important impact investment vehicles. Impact Assets 50’s latest annual Showcase of Impact Investment Fund Managers lists six CDFIs – The Calvert Foundation, Community Reinvestment Fund, Craft3, Enterprise Community Loan Fund, The Reinvestment Fund and the Local Initiatives Support Corporation.
As Next City’s fellow Oscar Abello notes,

CDFIs like these have a long history, going back to at least the 1970s, of responding directly to the financing needs of underserved communities across the United States. Their responsiveness can come from having community members as board members and staff, or from having to attract clients and customers from communities that have been historically marginalized from the mainstream financial system. There are 950 federally certified CDFIs today (compared with 808 in 2013). Most are not-for-profit organizations, but can earn profits from investments that get churned back into the community for more investment.

The GIIN report notes the USCIs landscape present opportunities and challenges. Some of the key highlights of the report are:

Survey of investment goals
The authors surveyed USCI investors to understand their investment goals when choosing different USCI products.

It is notable that for foundations, there is a clear emphasis on measuring and reporting on social impact. While information on financial performance is also considered important, aspects such as strong returns and high liquidity are not considered to be very important at all. For non-foundation investors, on the other hand, attractive risk-adjusted returns as well as reliable and meaningful social impact are both given high importance. Low loss rates and information on both social and financial performance are other aspects that scored highly.

Opportunities and challenges
The report lists several themes along which it identifies the gaps and prospects, including:

  • The need to prove impact is a challenge to raising investment in USCI, but sophisticated product managers may be on their way to overcoming that.
  • Investors show appetite for several USCI products, even though there is currently a mismatch between investor demands and product realities.
  • Lack of liquidity appears to be one of the greatest weaknesses, causing investors to focus on short-term products.
  • Many of the most sophisticated USCI funds need equity to continue to scale investment but liquidity limitations are a serious impediment.
  • The USCI field struggles to benchmark investment performance on risk and return

Ways Forward

Interactions with close to 100 stakeholders in the USCI space support the impression that USCI is currently a small and fairly closed community in which the major players know one another well, but are not well known outside their circles. Despite significant time spent searching for investment advisors, foundations, corporations or other players who were actively and significantly involved in USCI, relatively few such organizations were discovered by this research that we were not aware of at the outset of the project.

Data from community development banks and credit unions suggest that in fact, the largest investor group in USCI is not high-net-worth individuals, foundations, or corporations, but low-income households themselves, through their deposits in those institutions. The involvement of wealthier individual investors, and of institutional investors outside the financial services and insurance sectors, appears to be growing, but is very far from scaled.

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