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Place-Based Investing: More Impact, Closer to Home

Published on

April 11, 2019

Community foundations are bedrocks of their local populations — it’s in their name. In 2013, over 750 community foundations across the US gave an estimated $5.2 billion to issues with local importance such as the environment, education, disaster relief, and health. These groups are selective with their giving, and for the most part, the vast majority (90-95%) of their endowment is invested. Unless those investments have been reviewed, they’re likely to include companies that are detrimental to the foundation’s mission. Thanks to evolutions in technology, community foundations can now ensure that even their invested assets can work towards community goals.

Like many others, community foundations have realized that their invested assets may actually be undermining their organization’s objectives. Without knowing it, a community foundation might own shares in a company whose factories pollute local waterways, or a bank that contributed to excessive risk-taking during the 2007 financial crisis. This could be the case for even the most well-intentioned foundation: unless someone who understands the foundation’s mission has examined its investments closely, there’s no guarantee that a company or project in the portfolio isn’t at odds with the foundation’s work.  Leaders have started reconsidering where their assets are invested and shifting towards options that are aligned with their programmatic work.

Place-based impact investing centers on local (or otherwise geographically selected) companies and projects, and aims to bring social and environmental benefits, alongside financial returns, to that area. Examples of investments include local affordable housing, community solar power, and municipal bonds. Baltimore-based Bluehub Capital, for example, has successful initiatives dedicated to supporting low-income communities, including foreclosure relief, solar energy, and a loan fund for community arts, healthcare, schools, and housing projects. But place-based investing (PBI) was limited to private placements and alternatives, which are only available to large, sophisticated investors. This made PBI inaccessible to most DAFs and many community foundations’ endowments.

Fortunately for communities and their benefactors, OpenInvest makes it easy for investors to make an impact on their local communities with the public equities portion of their portfolios. The philosophy behind place-based investing works in liquid assets, too. By identifying top employers in the region of focus and increasing exposure to those companies, OpenInvest assembles portfolios that are both mission-aligned and financially equivalent to a traditional investment product like an index-tracking ETF. This transforms PBI from a niche approach suitable only to organizations with very extensive resources (or limited fiduciary duty to their donors) to a sensible investment strategy that can be implemented at the same cost and risk profile as most passive investment options.  

The liquidity and low minimums required for place-based investing in public equities make it suitable for a much broader range of investors– particularly for DAFs and community foundations’ core pool of assets, whose very purpose is to improve the environmental and social situation of a particular region.

Foundations, endowments, and other institutions of all sizes, can easily tilt the majority of their holdings towards their regional economy, while still tracking passive indices, and without adding costs. Without changing their investment strategies, grant-making, or any other structures, organizations can immediately and easily make their existing assets start working for their communities. Community foundations can now be sure to use every possible lever to impact the development of their region: with their grants, programs, and investments.

A map showing companies that OpenInvest identified as large employers in Appalachia for a community foundation dedicated to economic development in the region.

Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. One cannot invest directly in an Index. Any opinions, estimates and forecasts offered in this document constitute judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this document to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice. OpenInvest may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information herein that has been provided or obtained by third parties.

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