The Ford Foundation is seeking to bridge the divide between socially-conscious investors and impactful community investment opportunities. By working to cut through confusion, clarify misperceived investment risk, and correct an absence of facilitative financial infrastructure, it seeks to help unleash the explosive potential of the community investment market to transform the neighborhoods so many families call home.
The foundation will deploy grants and program-related investments (PRIs) totaling approximately $50 million over the next five years and convene key actors in both community investing circles and mainstream capital markets to support the following approaches: 1) building infrastructure necessary to take to scale current community investing tools and institutions, such as Community Development Financial Institutions (CDFIs). This might include tools like product standardization, servicing platforms, rating systems, deal matching services, or risk management mechanisms; 2) creating and testing new products and tools, beyond CDFI platforms, to promote new investments with demonstrable community impact that will attract new investors, including pension funds, high net worth individuals, corporations and non-CRA investors, to help to bridge subsidy gaps, and demonstrate potential to go to scale; 3) advance policy and regulatory changes (for example, Dodd-Frank Wall Street Reform and Consumer Protection Act, Government-Sponsored Enterprise (GSEs), Community Reinvestment Act (CRA), and the potential to update Employee Retirement Income Security Act (ERISA) to enable fund managers to consider additional factors beyond financial return without violating fiduciary duties) that incentivize mainstream investors to increase availability and access to capital in disadvantaged communities. Of the total capital deployed by Ford through this commitment, it is expected that 35% will used for quality job creating investments and 65% to support affordable housing development.
The Ford Foundation has a long history of building and investing in community development finance initiatives, and has supported the creation of many of the community investing tools and institutions essential to the field today.
With this commitment, however, the foundation seeks to move from transactional engagement in community investing to transformational engagement by supporting new systems and field-wide infrastructure, which will pave the way for growing, reliable, and sustainable flows of private capital to community investing. The foundation's new strategy to support the Next Generation of Community Development Finance is designed to bring community investment to scale by replicating and expanding proven and innovative models of CDFI's, including capital aggregation strategies and deploying new approaches (such as the Housing Partnership Equity Trust) that have potential to attract an entirely new population of community investors to the field.
June: Publicly announce the Next Generation of Community Development Finance strategy; Continue conversation with existing and new partners and grantees regarding their interest in advancing the next generation of community development finance.
January: Formally launch the Next Generation of Community Development Finance strategy; develop a communications plan; engage and enlist new strategic partners, which would include new potential investors like pension funds, high net worth individuals, and family officers, as well as existing grantees and intermediaries; design and launch an evaluation of the strategy.
September: Secure internal and external commitments from the Foundation and external partners such as other philanthropic institutions, banks and new investors; convene partners to identify shared goals, tactics, and strategies. Support three grantees to advance policy related to impact investing.
December: Complete deployment of up to $2 million in grants and underwrite up to $10 million in program-related investments in support of strategy.
2015 - 2018
Ford Foundation commitments will be secured through the biennial budgeting process based on past performance and the Foundation's strategic direction. Secure external commitments from outside partners, potentially including other philanthropic institutions, banks and new investors who will provide leverage for the Foundation's investments; convene partners to identify shared goals, tactics, and strategies, and gaps in the market or infrastructure.
Present evaluation results from first two years, adjust strategy with key partners, including grantees and other investors.
Strong and healthy communities depend on access to capital. Yet in far too many disadvantaged neighborhoods across the United States, sufficient capital remains out of reach. As a result, hard-working families are unable to purchase affordable homes or grow new businesses, critical infrastructure needs remain unmet, jobs decline, and the very fabric and potential of entire communities is put at risk. The challenges are two-fold: underinvestment in communities and lack of market infrastructure for private investment to flow. On the first challenge, one in four working households spends more than 50% of its income on housing. The proportion of cost-burdened households continues to rise, and yet affordable housing production is down. Public programs are insufficient to meet demand, as only one in four households who need housing assistance receive it. In addition, 8% of U.S. households are unbanked, and another 20% are under-banked. Both rely on high-cost alternative providers such as payday lenders and check cashers. These challenges, and many others can be solved through community development interventions, but capital is unavailable to grow the interventions to match the scale of the problems. Additional community investment could help fill many of these capital gaps, but, as noted above, the market infrastructure is absent for large scale private investment to flow to these communities and working families. The absence of transparent and robust information about community development investment opportunities makes investments difficult and expensive. Infrastructure does not exist to provide investors with an efficient way to explore new products and asset classes, identify investment opportunities, connect with key stakeholders, and identify best practices. The policy and regulatory environment creates barriers to an efficient flow of capital into community development finance opportunities.
But there's good news on the horizon. Just as the need for new capital has grown, so too has the number of savvy, socially-conscious investors who seek not only financial return, but the chance to build a stronger and more sustainable world. Today, however, potential investors remain disconnected from sound community investment opportunities that meet these very goals. A new generation of community development finance - one that achieves the scale needed to truly meet communities' needs - is within reach. But realizing this potential demands market-based innovation, creative capital solutions and the development of a new market infrastructure that better serves existing and new investors alike. The result can be a more resilient and reliable community investment system that strengthens our neighborhoods far into the future.
Ford Foundation is seeking financial resources for co-investment, leveraged investment and subsidizing field-based infrastructure. The foundation is seeking access to other foundations, financial institutions, high net worth individuals, financial advisors, and others who share a desire to advance community outcomes while earning reasonable risk-rated returns on investment. In addition, the Foundation seeks help to network with philanthropic, public, or private organizations that already implement community investment programs to build a community of practice to launch a national community investment campaign, to exchange knowledge and best practices on innovative ways to bring new capital to communities. Ford is also seeking media partners to raise the visibility of community investing, and marketing partners to help develop and implement a communications strategy.
The Foundation can provide financial resources, support field-based data collection and evaluation, and convene strategic and new partners in the field. Ford Foundation will share its internal evaluation of the investments with the industry through an annual meeting of the initiative.