Building a Place-Based Impact Investing Ecosystem in Minnesota
A Closer Look at the Minnesota Collaboration
Mission Investors Exchange members recognize the power and impact in sharing knowledge, building networks and investing together. One excellent example is bearing fruit right now in Minnesota where that state’s Council on Foundations just announced a first-of-its-kind impact investing collaborative in the US: a $20 million fixed-income bond fund focused locally, specifically to benefit affordable housing and small businesses in their community.
Minnesota’s Council on Foundations credits its peers from the Council of Michigan Foundations with seeding this idea during a presentation at the May 2016 Mission Investors Exchange conference. Susan Hammel, an Executive-in-Residence for Impact Investing at the Minnesota Council on Foundations (MCF) and founder of Cogent Consulting, leads the collaboration and spoke with us about it.
MIE: What was the impetus for this collaboration?
SH: The momentum began last spring right after I started my residency at MCF. Members said they wanted to do more in impact investing and something together that specifically targets Minnesota. The pieces were in place: number one, my being in the field for years, the relationships were there. Number two, we got word of Michigan’s work on a collaboration.
It’s funny, sometimes it’s easier to get people together when we’re out of town. And the Mission Investors Exchange Seizing the Momentum Conference last May in Baltimore was a perfect venue. The Minnesotans were eager to learn from our peers in Michigan, who would also be there. That’s when the spark was lit.
When we got back home the foundation members said, “What’s next Susan? This sounds interesting. Let’s go!” So, we brought the interested foundations together that September to evaluate different investment manager options for creating and managing this vehicle with us.
MIE: What is the actual investment?
SH: The product is the Minnesota Impact Investing Initiative, a virtual fund within a bigger fund managed by RBC Global Asset Management. Like the name says, it’s a Minnesota-focused fund, where RBC has the mandate to find new or existing investment opportunities across the state that benefit affordable housing, small business and civic infrastructure. The return would be consistent with other investment funds focusing on short duration government asset-backed securities, historically a two to three percent yield above Treasuries.
We have raised more than $17 million toward our target of $20 million so far. We think this is something that can be done across the country, and we invite other investors committed to the Midwest to join us in this pilot and learn by doing. This collaborative model is an onramp for foundations that are thinking about making mission investments and would like local partners in that effort.
The minimum investment of $100,000 is much lower than the typical investment minimum of $1,000,000 for most private impact funds. It is accessible to everyone from small foundations with $3-5 million in assets to those institutions with billions. This collaboration is helping to seed new impact investing efforts and expand existing programs.
MIE: Who was involved?
SH: The real purpose of this work is to bring the community together to increase our mission-aligned investing. Not surprisingly, almost all the participants are also members of Mission Investors Exchange!
We have talented mission investing leaders in Minnesota. I give them credit for mentoring me in all aspects of my residency, in particular, The McKnight Foundation’s Elizabeth McGeveran, Northwest Area Foundation’s Amy Jensen and Minneapolis Foundation’s Karen Florez. These leaders helped us craft a solution that would work for most. The Bush Foundation is also an investor and funds my position here.
There are at least eight other first-mover foundations actively bringing this opportunity through their internal review processes. These include the Initiative Foundation, Mortenson Family Foundation, PFund Foundation, Otto Bremer Trust and other community foundations, small family foundations and rural-based foundations. Since our announcement, I’m delighted to share that three more foundations have committed to the fund: Sundance Family Foundation, Schnieders Family Foundation and the Minneapolis Foundation.
MIE: What does this experience tell you about the state of the impact investing ecosystem?
SH: Impact Investing has a long arc. In the last three years it has gained in popularity for more kinds of investors to align their investments with mission. Here in Minnesota we’ve had foundations doing impact investing for years. That’s probably why Mission Investors Exchange chose to hold its 2014 conference here. Now the discussion has jumped across the program/investment tracks and we hear more foundations talking about the other 95 percent and focusing on the endowment. That’s where we’re seeing a great deal of interest and appetite.
Our local impact investing ecosystem has grown from 50 people to triple that just in this last year. And it includes all three parts – investors who need something to invest in, investees who need capital to grow programs, and intermediaries who help bring them all together. You can see a map of our thriving ecosystem online at http://cogentconsulting.net/map.
MIE: What are you working on next?
SH: We welcome learning together and from other communities. We are exploring different options and thinking about different asset classes, about a mix of risk-return tradeoffs. This collaborative investment focused on improving community outcomes in Minnesota is causing Chief Investment Officers at foundations to think differently. We are particularly interested in how impact investing can be a powerful tool to accelerate change in communities of color. We have a fantastic group of thriving CDFIs and are exploring innovative ways to activate more investment capital flowing to them.
Michigan has been an inspiration and generous in sharing what’s worked and what hasn’t – we’re tracking their work closely – hats off to Debbie McKeon of the Council of Michigan Foundations for sharing their experiences as they have built their ecosystem over the past four years. Sharing learnings are a big piece for moving forward, and we’re more than happy to pay it forward by telling others about our efforts.