There’s a record $14 trillion in total deposits sitting in U.S. banks; yet less than 1% of those funds are being used for social impact. Mission-driven investors, including foundations, have a key role to play in leveraging these idle dollars to strengthen, rather than weaken, the social causes and values they support. To help move the needle on impact investing, a group of technology companies, Community Development Financial Institutions (CDFIs), and advisory firms are working to create tailored options and products that provide clients with better opportunities to invest cash to deliver direct benefits to communities.
On February 19, these industry leaders came together during Confluence Philanthropy’s “Cash for Impact” webinar to discuss: the need to deploy cash more thoughtfully, the range of activities impact dollars can support, and the various instruments and platforms available to investors. The webinar featured Catherine Berman, CEO and co-founder at CNote; Tyler Jackson, Impact Investment Officer at Low-Income Investment Fund (LIIF); and Rick Davis, Managing Partner at LOHAS Advisors.
There are a number of reasons why cash and liquid allocations are often ignored in social impact investment portfolios. Firstly, equities are perceived as more attractive than cash, and PRIs, loans, and direct investments tend to garner more attention. Secondly, more so for many CFOs, it’s more convenient to simply check the money market box or to continue to work with their current large bank. Lastly, new solutions, especially impact solutions, are perceived to carry greater risk, despite the fact that many investors fail to see that their deposits and missions are misaligned.
Catherine Berman, CEO and co-founder at CNote, started the conversation by pointing out that more than $31 billion in cash is held by the 1,000 largest foundations. “Think about if we unlocked even a portion of that $31 billion for good,” she said. “[Think about] what we could be doing in this country.”
CNote is tackling “cash on the sidelines” through its Promise Account, a fully insured product that gives larger investors, institutions, and foundations a single place to put their cash to work for positive social impact while achieving an attractive return (currently between 1.5% and 1.7%). CNote’s technology plugs investors into a national network of CDFIs and low-income designated credit unions, which allow for greater rate flexibility and 90-day liquidity.
To date, over 50% of CNote investments went to women and minorities and, in 2019, nearly 80% of all CNote investments went to low- to moderate-income communities.
LIIF has a similar commitment to low-income neighborhoods. The San Francisco-based CDFI has a 35-year track record of building geography-specific bridges between private capital and low-income communities. LIIF created what’s called the LIIF Impact Note in 2018. The $420 million revolving loan fund has an offering size of $35 million, and minimum investments are $50,000. Tyler Jackson, Impact Investment Officer with LIIF, said there are four note offerings of varying terms: six months, three years, five years, and 10 years.
“When we developed the Impact Note, we heard that investors were looking for liquidity as an option,” Jackson said. As such, he says that since its launch, 20% of investors have opted for the six-month product, which offers a 1% return. Once those notes come up for maturity, however, 88% of them are renewed, meaning that LIIF is able to pass a lower cost of capital onto its borrowers. LIIF’s three-year Impact Note option continues to be the CDFI’s most popular option: it has a 2% return on investment.
Within the broader conversation of using cash for impact, Jackson advises foundations to sit down to have a conversation with whomever they’re investing in. “You want to make sure it’s a good fit between you and the borrower,” he said.
Rick Davis, Managing Partner at LOHAS Advisors, agreed. He said that as the field of impact investing continues to grow, there’s a “proliferation of groups out there who are not inherently in the impact space.” Davis continued by saying that foundations and individual investors should be wary of those players who “repackage certain aspects of their business and hold [them] out as an impact cash solution.”
LOHAS Advisors provide social impact investment advisory services, including cash option analysis, to family offices, high-net worth individuals, corporations, foundations, and wealth/asset managers. LOHAS helps clients leverage donor-advised funds (DAFs) and other impact investment strategies to generate impact without sacrificing returns.
When evaluating cash option solutions, LOHAS Advisors take the following into consideration: FDIC insurance, liquidity, deposit size, frequency of withdrawals, interest rates, and returns. “The bulk of money market accounts are generating very poor returns,” Davis said. “In almost all instances of what we’re talking about here generates better returns than your average money market fund.”
Once LOHAS has evaluated the financial components of an investment, it then looks at impact criteria, including community benefits, place-based giving, and mission-driven causes.
Davis exorted all investors to revisit where their funds are allocated right now, and see whether they are aligned with the organization’s mission. Investors should not accept the status quo in managing their liquid assets, as there are now several easy-to-use and flexible solutions available in the market.
- Mike Ivancie, Director of Marketing, CNote
