By Jerilyn Klein Bier
For nearly 30 years, Trillium Asset Management, a leader in sustainable and responsible investing, has been helping clients invest directly in communities to create social impact in exchange for modest financial returns.
"The money that our clients have placed in community investments instruments has provided capital to non-profit organizations that have created and saved tens of thousands of jobs and homes in the communities they serve," says Randy Rice, Trillium's Community Investments Manager and a senior portfolio associate in its Boston office.
Most directly placed community investment vehicles are loan funds, community development banks and credit unions. These organizations usually offer debt vehicles, which Rice says provide a fixed exit for investors.
He adds there's a clear funding advantage to domestic loan funds being certified Community Development Financial Institutions (CDFIs), a designation from the Treasury Department that makes them eligible for monetary awards and tax credits.
Trillium currently has $22 million in directly placed community investments (a figure that also includes some private equity and venture capital), up from $3.5 million in 1999. Although that's just over 2% of its total $1 billion of assets under management, most clients have allocated at least a small portion of their portfolio here, says Rice.
Clients direct a small portion of their total investments to this sector. The impacts they seek revolve around jobs, safe places to live and healthy environments. After Hurricanes Katrina and Rita, Trillium saw an uptick in interest in investments tied to the Gulf Coast. Sustainable agriculture and affordable housing are currently popular preferences.
Trillium initially tries to fill clients' individual interests from the approximately 30 community investments it holds. "If there's a hole, we work to find an organization that fits," says Rice.
The firm usually invests for three to five years in loan funds, and their re-up, or rollover rate (how often clients reinvest for another period) is well over 85%.
Some clients still invest in the Institute for Community Economics (ICE), the first loan fund Trillium got involved with in 1984. Now part of the National Housing Trust, it makes loans to community land trusts and nonprofit organizations to bring permanently affordable housing to lower-income people. Rice says it's helped residents of mobile home parks cooperatively buy them so they can pay rent for the land beneath their homes to themselves instead of to a landlord who could sell the park and evict them.
One of the funds Trillium likes is Boston Community Capital's (BCC) Boston Community Loan Fund. BCC's Stabilizing Urban Neighborhoods initiative helps homeowners who've gone into foreclosure on predatory lending mortgages try to repurchase their homes. Rice likes that BCC educates borrowers about mortgages. "Financial literacy and technical assistance are as important as lending money," he says.
Another holding is the North Carolina-based Self-Help Credit Union. It's been working with the Center for Responsible Lending to try to regulate payday lenders who make short-term, unsecured loans to people with cash flow difficulties.
Trillium can place investments that support microfinance and community lending on six continents, says Rice. Some international organizations it works with include Accion International, Oikocredit, Shared Interest and Root Capital.
On the home front, clients can select state-specific loan funds or target specific need areas. For example, clients who want to have an impact in Native American communities can invest in First Nations Oweesta Corp., the Lakota Fund or Native American Bank.
Rice says expected returns on domestic and international loan funds are averaging 2% to 2.5%. Trillium portfolio manager Elizabeth Levy says clients often see this part of their portfolio quite differently and may accept below-market returns.
Financial due diligence is very important for community loan funds because they're uninsured, unsecured and aren't SEC-registered, says Levy, who performs credit risk analysis. She examines their ability to meet interest and principal payments for investors as well as their rollover rates, balance sheets, repayment histories, loan loss reserves and accounting policies. Trillium strongly encourages CDFI loan funds to get rated by CARS, the CDFI Assessment and Ratings System, which looks at financial and social impact.
More risk-adverse investors may opt for instruments from FDIC-insured community banks or National Credit Union Administration-insured credit unions.
Investors don't have to be accredited to do community investing in these types of vehicles, but most of Trillium's clients are accredited. Minimum investments range from $10,000 for banks and credit unions to $50,000 for loan funds.
Non-accredited investors can do community investing through various sources including Calvert Foundation's community investment notes (an electronically-traded pooled asset vehicle that's in Trillium's portfolio), MicroPlace (an Ebay company that pays interest) or Kiva (a non-profit that provides peer-to-peer lending), says Rice.
Calvert's community investment notes have a $5,000 minimum investment.
Trillium is studying different options to help make community investing more widely accessible. Currently, many custodians don't want to hold these assets in client accounts, much of the bookkeeping is still done manually and there's a lack of liquidity.
"We just believe in providing capital, we believe in these organizations and our clients want it," says Stephanie Leighton, senior vice president and portfolio manager at Trillium.