NB Financial Health

Thursday
October 17
2013

Scott Anderson

Focusing New ‘Lenses’ in Investing for Change: An interview with new Calvert Foundation CEO Jenn Pryce

About a 45-minute drive from my office here at the University of Michigan is Woodward Avenue in Detroit. Woodward is the legendary thoroughfare for cars and cruising. But it’s also the pipeline directly into the some of the harshest poverty in the United States. Without exaggeration, this is the base of the pyramid: America.

It’s also where Calvert Foundation recently teamed up with other funds and foundations to build a retail investment vehicle for inner city revitalization. I first learned about this project at SOCAP when I spoke with Jenn Pryce, the new CEO at Calvert Foundation. I was equal parts excited and skeptical, having heard many a revitalization proposal for Detroit’s struggles. (Disclosure: Calvert Foundation is a Content Partner of NextBillion).

Pryce joined Calvert Foundation in 2009 as U.S. portfolio manager, later moving up to vice president of strategic initiatives, and then to chief strategy officer. She has also managed Calvert Foundation’s Community Investment Partners subsidiary, which offers fund and asset management services for institutional clients.

Before joining Calvert Foundation, Pryce had tours of duty in both the not-for-profit and Wall Street worlds; specifically at Nonprofit Finance Fund and as an equity research analyst at Morgan Stanley’s London office in the Investment Banking division. Below are excerpts of our interview.

SA: First, congratulations on your new position as CEO of Calvert Foundation. You’ve been with the organization for over four years, which is like a light year in terms of the evolution of impact investing. Can you give us an overview of what is encouraging you and perhaps what storms you see on the horizon for investment vehicles that hope to help the poor?

JP: Thank you. What’s most encouraging to me is witnessing the explosion of impact investing on a global scale. Indeed the momentum is stronger in some geographies than others, nonetheless in the last year we have seen global initiatives unfold such as the G8 gathering in June and Global Impact Investing Network truly becoming global with events attracting people from more than 30 countries. This growing momentum is resulting in increased public awareness and desire to invest in the impact investing sector, and the demand is growing the supply of new investment products.

Today the majority of products are suited for higher income individuals, accredited investors. Also, unlike traditional markets a majority of the impact investment products available are private equity. To respond to the retail investor – one who has income less than $250,000 per year or net worth less than $1 million – we need more fixed income products in the marketplace. Calvert Foundation’s Community Investment Note is one of the few retail fixed income investments available to US retail investors today. Importantly, investors want choice, many retail fixed income products to compare and assess – the selection process validates the existence of an impact investing market.

For the growth of the market, it’s paramount that we capture emerging investor interest as well as harness the capital that will be coming into the market from wealth transfers, estimated at $41 billion over the next decade. We also need to support demand from communities that will witness shrinking public funding.

SA: When you first joined Calvert Foundation you served as its US portfolio manager. And in the last eight years the foundation’s assets have grown from $122 million to almost $400 million. Chart this growth for me – where are you seeing investments making the largest impact in the lives of low-income people?

JP: Along with the steady growth of our business in 2010, we partnered with Citi to launch the Communities at Work Fund. The fund was focused on job creation at a time when many communities were recovering from the recession, and capital to support small businesses was scarce. Through this partnership we provided more than $100 million in capital to about 25 Community Development Financial Institutions when traditional capital was unavailable. We provided a high return to society measured through the creation and retention of jobs.

Another area of growth during this time came from the launch of our first initiative, a pilot called Green Strategies to Fight Poverty. As the green movement grew through the early part of this decade we saw a market failure emerging, communities being left behind at the intersection of green and base of the pyramid. We launched this program to raise awareness with the community, investors and other capital sources as to this emerging inequality. The capital we raised was targeted to organizations around the globe providing services to the underserved in a manner that honored the earth and the resources of that community.

We have since launched the Women Investing in Women Initiative (WIN-WIN), targeting $20 million to organizations that are empowering women around the globe. Initiatives will be a cornerstone of our work going forward.

SA: On that point, you led the team that put into motion the WIN-WIN initiative, which is a retail investment product available to U.S. investors focused solely on organizations that empower women. How would you rate the progress of this project so far and how has it informed your experience for future Calvert Foundation funds and projects?

JP: Wow, we did not know what we had on our hands when we launched WIN-WIN in March 2012. Up until this launch we had faced the investor as an impact investing fund with targeting available by regional geographies (dividing the US into eight regions and a ninth was international). We launched WIN-WIN in response to what we heard from our community of investors and financial advisors about the desire for an investment that directly supports women. WIN-WIN is the first and currently the only retail investment product with a gender focus.

We’re about two thirds to our goal of investing $20 million in organizations working to empower women through their programs or governance structure. Though our data collection is in early stages, we can already report that WIN-WIN has served nearly 2,000 clients and financed close to 100 small businesses and more than 1,600 microenterprises. Seventy-eight percent of WIN-WIN portfolio organizations have majority female staff and 56 percent have majority female management, while 33 percent have female CEOs.

We did not fully understand until after the launch of WIN-WIN the power of reaching an investor through what they care about. Not only does it create a more intimate relationship but it also can lead to uniquely different outcomes.

For example, of the 700 WIN-WIN investors, roughly 87 percent of those investors did so online through our partnership with Microplace. For us that stat is really salient because it points to the potential to use new media and online engagement to drive action in support of a certain issue, gender equity in this case.

SA: We talked earlier at SOCAP in September about some of the directions you’re hoping to take Calvert Foundation in the coming years. In addition to investment in women-led businesses and projects, you talked about a heightened focus on urban renewal, participation from diasporas in developing economies, the environment and health care. What’s driving some of those investment decisions?

JP: We’ve been thinking a lot about the idea of the ‘lenses’ people use to invest, the idea of curating portfolios of organizations that investors feel empowered to invest in because those organizations support a cause they care about. These portfolios are creating the driver for an investor to achieve their desired social return or what we are calling impact drivers.

For those of us working in the impact investing industry, the idea of democratizing impact investing is really exciting, but it doesn’t really resonate with people who might not even think of themselves as investors. So we’re starting to shift our thinking to what specific causes and geographies motivate people. We recently did a survey of our investors and found that they’re most passionate about local community development, women’s empowerment, and the environment.

The genesis of the WIN-WIN program was the desire from financial advisors and their clients for an investment that more specifically targets women. We started to see that people want to take actions to support the causes they care about, and we think investing can be one of those actions.

So the focus is on offering investments that move people from the heart. For example with the Iconic Places initiative, which we’re expecting to launch early next year, there is a huge need for capital to redevelop key neighborhoods in cities like Baltimore, Detroit, and the Twin Cities. We think that given a way to express their support, residents in these areas, even if they don’t think of themselves as investors, will take action to support their communities.

SA: One of the areas we are focusing on with our new site, NextBillion Financial Innovation, are mechanisms that put financial capability into the hands of the under-served. What Calvert Foundation is doing around its Revitalizing American Cities seems to fit that theme. Can you tell us about it?

JP: I’d say that the most unique thing about Calvert Foundation is our Community Investment Note because it’s one of only a handful of impact investments out there available to anyone.

We’ve been offering the Note since 1995 to raise capital for our broad portfolio of social enterprises and nonprofits, but are also offering targeted versions of the Note that are supporting women’s empowerment via the WIN-WIN program, the environment, and different geographies in the U.S.

While I have to keep mum about the details of the Iconic Places initiative that we’re planning to launch early next year, there will be a focus on using the web and social media channels to stimulate engagement and investment from individuals who are living in those communities, or those who simply want to support those communities.

SA: Along those lines, just a few weeks ago Calvert Foundation was one of several organizations providing capital to the Woodward Corridor Investment Fund, developed to invest in real estate projects to revitalize the city of Detroit. What is Calvert Foundation’s role?

JP: There is high demand for capital that can be put to work long-term in cities that have been affected by urban blight, but it’s traditionally been difficult for project developers to access that kind of capital.

We’re one of the lead investors in the Woodward Corridor Investment Fund (WCIF), which is being managed by NCB Capital Impact and The Kresge Foundation. The fund will provide capital to projects that are mixed use, mixed income, transit-oriented, and promote density, diversity, vibrancy and walkability in one of Detroit’s key urban arteries.

It’s really a unique partnership because of its diversity of actors, variety of investment capital, and long-term horizon. Banks, foundations, insurance companies and impact investors are coming together in a powerful way that will serve as a model of what is possible through non-traditional collaborations. This collaboration is very place-based, focused and concentrated – but at the same time hugely ambitious. Our goal is to push historically underserved neighborhoods over the “tipping point,” so that they may become models of growth in their cities.

Calvert Foundation’s investment in the WCIF is anchoring the launch of our Iconic Places initiative, which is focused on investing in long-term redevelopment in key cities, and connecting residents in those cities with the opportunity to invest in redevelopment efforts in their own backyards.

We see our value in the connection we create between residents and the long-term capital that developers need to redevelop their cities. The Community Investment Note will act as that “bridge” to connect investors and the revitalization of their communities.

SA: As a Detroit area native I have to labor a bit more on this fund. Watching new attempts at economic development and revitalization brings equal parts excitement and skepticism for many of us in the region. How is this initiative different from many that have come before and how will you determine success?

JP: Kresge Foundation spent a lot of time, as did NCB Capital Impact and Living Cities, on analyzing the market in Detroit and what was missing to truly revitalize parts of the city around anchor institutions, including leaning heavily on local leadership input.

The WCIF structure is part of their answer to these questions. They incorporated lessons learned from previous failures, specifically failures in the mixed use/multi-family development market in Detroit, and designed this fund to address those failures.

What the WCIF tests is whether tailored, clustered redevelopment with long-term objectives that includes attractive workforce housing as well as retail & services will “tip the scale” in terms of the Woodward Corridor & surrounding neighborhoods towards being more sustainable communities – rising rents, full occupancy, increasing real estate values, and new/growing retail activity.

Technically speaking, the main reasons this fund is different are:

1. Longer term capital. Fifteen year, fixed rate money is very hard to nail down in Detroit as everyone expects ongoing real estate values to decline or stagnate, so lenders and investors generally aren’t willing to take interest rate risk. This is a huge outlier generally speaking in the community development world in ANY city, much less Detroit.

2. Subordinate capital. The fund will invest in second positions to make certain projects work that otherwise wouldn’t pencil out. For example, the fund will invest in long-term vehicles (LTVs) as high as 120 percent. Most commercial and even CDFI lenders won’t go above 75 percent LTV. Detroit in particular needs this because of: low starting real estate values and depressed appraisals; historically stagnant or decreasing rents; and very high costs of labor and materials needed to rehabilitate these crumbling structures. Many potentially attractive buildings from a developer standpoint sit empty, contributing to urban blight, because of this specific imbalance.

3. The amount of overall support provided to developers, from low-cost predevelopment funding (Ford Foundation) to cash incentives to refinance using commercial sources (Living Cities).

4. The emphasis on building a replicable structure that can be utilized in other cities with similar challenges and anchor supports – one of Kresge Foundation’s objectives was to try to make this a national example.

The question about measuring success is probably a longer conversation than what you can fit on the website, but the number one indicator of success is the properties’ ability to refinance at or before maturity from commercial sources. These projects are currently unbankable, and the reasons they are unbankable are replicated throughout Detroit as well as other urban areas. So if you can solve for those issues in this fund, that means you can solve for them in other areas, and draw investors back to places like this.

There are lots of other project-specific metrics, plus rent values, real estate values, etc. we could talk about, but the biggest measure of success is the above, because it would indicate a functioning real estate market in the Woodward Corridor. That would be a huge win for Detroit.

SA: A closing thought. In recent days I’ve seen several stories looking back on the five year anniversary of the financial crisis, starting with the Lehman Brothers failure. Yet, we’re seeing the Dow rise above 15,000, with most investors (at least in the stock market) seeing a return of the wealth lost. At the same time, income inequality remains a festering issue both here in the states and around the world. I’m curious how you see these forces shaping the world of the retail investor and impact investing?

JP: I view the Lehman Brothers collapse as the catalyst for the impact investing sector. Impact investing addresses the mega trends that were (and continue to be) in play before the collapse, trends like rising inequity and the fragility of the planet. What Lehman Brothers did was force us to examine what we as a collective society took as truths, such as the banks being too big to fail, that regulatory systems and accounting checks and balances were healthy and well-functioning, that not understanding how a financial product works was okay.

As we began to question these long-held truths, it let in space for a new way of thinking. It was the daylight that was needed to catalyze impact investing and entrepreneurship. Indeed today a larger percentage of people believe the main purpose of business is to create social good, and the second is to generate a profit.

New ways of thinking take time to cement and can be aided by quantitative outcomes like track record of financial and social performance. Many of the products and funds are new in the last few years, so we will need to wait a few more years for their five and ten-year performance. Until then, we need to keep investor interest high through retail products, and continue having robust conversations with financial advisors and university endowments, two of the big levers in the impact investing market. I suspect that pension funds and insurance companies, which manage the vast majority of investment capital, will remain on the sidelines until we have a more seasoned and scaled industry.

Categories
Impact Assessment, Investing
Tags
Calvert Foundation, financial inclusion, Impact Assessment, urban, Women