Affordable Capital For Small Businesses And Other Innovative Vehicles For The Impact Investing World2 June, 2017 / Articles
There’s a new impact investing financing vehicle social entrepreneurs might want to know about.
It’s also the latest in a series of innovations in the impact investing world, ranging from the Ford Foundation’s committing up to $1 billion in mission-related investments to new online impact investment marketplaces.
Called Capital Aggregation, it’s a recently launched business line for Calvert Foundation, aimed at mission-driven companies, as well as financial advisors and their accredited clients who are interested in fixed-income impact investment deals.
For accredited investors, the goal is to offer an efficient way to invest directly in private market, fixed-income deals with measurable social returns, as well as the usual financial ones. “Right now, most accredited impact investors who want to invest directly need to business develop it, underwrite it, paper it, structure it,” says Jennifer Pryce, president and CEO of Calvert. “This makes it a lot easier operationally for investors who can come to us and get access to multiple investments in different areas, geographies and rates of return.”
Also, impact investing funds or intermediaries can use Calvert for support in everything from structuring vehicles to raising capital. For most small funds raising between, say, $10 million to $50 million, it’s a complex and time-consuming, one-to-two year process. By tapping Capital Aggregation, they can hand the capital raising and structuring process over to Calvert, according to Pryce.
In addition, Calvert offers a loan administration service, through which it can service and monitor financial and social returns for investors.
It’s what Pryce calls a “match-making, one-stop-shopping role,” where the organization sources, structures and administers the deals, which are financed by investors who are part of a group assembled by Calvert.
So far, there have been five transactions aggregating over $70 million, with about three to five more in the pipeline, according to Pryce, who says the organization spent about a year piloting the program. One example: the Greenline Ventures Small Business Capital Fund, which provides affordable capital to small businesses operating in distressed U.S. census tracts with the goal of creating quality job opportunities for low income populations. It’s a $20 million fund, with minimum investments of $500,000. Pryce also expects to fund larger deals down the line.
Calvert gets fees from investors, as well as funds or intermediaries.
What does Calvert bring to the party, since it traditionally has focused on the retail side of the business? Pryce points to Calvert’s long history providing fixed-income investments to mission-driven businesses and intermediaries, raising over $1.5 billion since its inception from over 15,000 investors. (Sold in increments of 1, 3, 5, 10 or 15 years, those Community Investment Notes have a rate of return of 1% to 4%). The result: During that time, says Pryce, the organization has built plenty of relationships with accredited and institutional investors. “As we launch this business formally, we have a cohort of 50 impact investors interested in the type of fixed income deals we’re presenting,” she says.
Plus, Calvert traditionally has worked with intermediaries, funds, affordable housing developers and others, as well as investing 10% of its portfolio directly into buildings or businesses. “That talent we’ve crafted structuring, managing and monitoring fixed income investments is exactly the skill we’re now leveraging as we help funds structure their products and go to market to raise capital,” she says.