Investing for Community Impact
To fully align financial assets with our mission, YouthBridge Community Foundation of Greater St. Louis invests in the community with the intention to generate measurable social impact alongside a financial return.
Our 25X25 campaign had established the goal to invest 25% of YouthBridge’s endowment assets locally by the year 2025.
25×25 Impact Investing Initiative
YouthBridge Community Foundation has made the first investments of our 25×25 Impact Investing Initiative, which we expect to total $5-6 million over the next five years. We have committed $250,000 each to two local Community Development Financial Institutions (CDFIs), IFF and Justine PETERSEN, with the intent of investing more capital into strengthening the St. Louis community.
“CDFIs are a meaningful way for us to invest our resources, and IFF and Justine PETERSEN were easy first choices, with proven track records in delivering outcomes,” says Barbara Carswell, YouthBridge CEO, adding, “It’s our goal to invite our donor clients to invest with us.”
IFF is a 30-year-old nonprofit lender and real estate consultant serving the Midwest, providing more than $118 million in financing for 178 community projects in the St. Louis area. As one of the nation’s largest small business microlenders, Justine PETERSEN provides access to safe and affordable capital for historically under-served populations, assisting over 5,000 residents in purchasing a home and deploying over $100 million to businesses.
What was the driving factor behind YouthBridge’s decision to launch the 25×25 Impact Investing Initiative?
We are doing this as an effort to more closely align our portfolio with our values. We believe outcomes for children improve when they and their family live in a strong, vibrant community–one with economic opportunity, quality jobs, healthy food, health care, quality education and thriving neighborhoods. This initiative came out of us asking ourselves, “What can we do to get more capital into the hands of the community, to make those things available? It required us to embrace a broader definition of the term fiduciary when making investment decisions.”
Is impact investing a new strategy for YouthBridge?
No. YouthBridge has been making impact investments since 1995. This initiative will continue that tradition of innovation, but puts in place an investment strategy that allows us to scale; benefiting one-to-many, instead of one-to-one.
What kind of investments are considered “impact investments”?
The term “impact investments” covers a very broad spectrum. Some view the grants we make to nonprofits as investments which is true in the sense that we seek a social return for the community in exchange for the grant, but that is stretching the definition of an investment. Our 25×25 initiative seeks a double bottom line return that combines a traditional financial return on the capital invested with social return or positive outcome for the community. The term can also refer to investments into publicly-traded companies that meet some set of investor-defined values, usually for environmental or social good. In our case, we are focusing on local and regional projects that provide social impact to our community with a financial return for us as an investor.
Will this replace your current grantmaking programs?
We think it’s possible to make social impact investments with a portion of our portfolio in a way that fulfills our broad interpretation of fiduciary responsibility and deliver those double bottom line results. We don’t envision any reduction to our grant programs and will likely see some grants made in support our social impact investments which provides even more leverage and impact.
Are those returns guaranteed?
As with most investments, returns are not guaranteed. Some might even say the nature of our intended investments could be slightly riskier, due to their non-traditional recipients, innovative approaches, and smaller scale. In most cases these investments will be made in the form of a loan requiring repayment of principal along with interest. This repayment cycle is essentially a “pay it forward” approach that allows us to reinvest those assets in the community again and again. Regardless, we believe it is our responsibility to the community to take risk where others are unwilling.
What are you doing to mitigate those potential risks?
By making our investments through CDFIs, we are tapping into their expertise in exercising due diligence, underwriting loans and identifying programs with the greatest potential for social impact. Banking institutions also rely on this expertise, often turning to them to fulfil their Community Reinvestment Act (CRA) requirements.
How else are investments made through CDFIs different than those from traditional financial institutions?
CDFIs offer what is sometimes called “patient capital,” and that also has the potential to lower our risk. Because these institutions have more latitude with repayment requirements, they are able to provide more time or restructure loans if needed. Since they are not forced to liquidate the project, they can help the recipient work through temporary financial strain and ultimately repay the investment. The default rate for many CDFIs is actually quite low which sometimes surprises people.
Can others contribute to or participate in the 25×25 initiative?
Right now, we are not structuring this as a fundraising campaign however, we’re always happy to receive donations! Ultimately, we would like to offer a way for our clients with Donor-Advised funds to invest part of their account in social impact investments with us. And of course, we are always happy to sit down with donors and their professional advisors to talk about ways they can incorporate philanthropy and impact investing into their wealth management plans.
What do you hope to accomplish with the 25×25 Impact Investing Initiative?
We want to strengthen our community so everyone has the opportunity to meet their potential and live full, productive lives. A thriving community provides the foundation for improving the well-being of children and their families. We also hope that by announcing this initiative, we will inspire other organizations to look at how they can invest their capital to achieve greater outcomes. We’re all in this together.