Investor Spotlight

Investor Spotlight: Community Capital Management

Community Capital Management

Barbara VanScoy, Founder, Chair of the Board, and Senior Portfolio Manager at Community Capital Management, shares her perspective with the GIIN community.

Global Impact Investing Network January 25, 2012

GIIN: What is Community Capital Management's mission, and why was it founded?
Barbara VanScoy:

CCM was founded in 1998 and its primary mission is to produce above-average, risk-adjusted returns while increasing clients' portfolio diversification and making a positive impact on the community and environment. In 1999, the firm launched its flagship fund, the CRA Qualified Investment Fund, to help banks gain positive consideration on the investment test portion of their Community Reinvestment Act (CRA) exams. Our belief was that portfolios of government-related securities - those primarily excluded from the major bond indices - could produce competitive returns while promoting community development. We recognized a demand for this strategy because it satisfies a bank's requirements under the CRA.

GIIN: What is the Community Reinvestment Act (CRA), and how does CCM's CRA Qualified Investment Fund help banks meet CRA requirements?
BV:

The CRA was enacted by the U.S. Congress in 1977 to ensure that regulated financial institutions do not discriminate the provision of lending, investment, or other services to low- and moderate-income or minority communities. Banks may not restrict lending to people or businesses based on where they are located. Additionally, the CRA requires periodic examination of these practices. If banks are not meeting their community reinvestment obligations, then their ability to acquire other institutions, open new branches, or any kind of expansion, may be hindered.

In response to banks' needs to meet these requirements, we launched the CRA Qualified Investment Fund CRA Shares (CRAIX). The Fund is a community investment vehicle that invests in fixed income securities such as agency mortgage-backed securities, U.S. Small Business Association pools and loans, and taxable municipal bonds that support community development activities in low- and moderate-income and minority communities.

GIIN: What services do you offer in addition to the CRA Fund?
BV:

Shortly after we launched the CRA Fund, a foundation wanted to make mission-related investments through a separate account rather than through the Fund, so we expanded our services to offer customized account management to institutional investors. After we gained experience working with foundations, we began working with other institutional investors such as religious organizations, pension funds, and insurance companies looking to make fixed income impact investments.

GIIN:

What is CCM's approach to impact investing?

BV:

CCM uses a proactive, positive screen for potential impact investments by investing in high credit quality bonds that support community development. These securities finance a range of community initiatives, including, but not limited to, affordable housing and job creation for low- and moderate-income communities, environmental sustainability, small business development, and neighborhood revitalization. CCM chooses investments through a two-prong approach that focuses on financial and impact aspects.

The two products that we offer (the CRA Fund and separate accounts) are service-oriented. The portfolio management team works with each institutional client to understand their unique financial and impact goals. We provide detailed financial and impact reports to our clients so they can see how their portfolio has performed, along with a thorough evaluation of the portfolio's community and environmental impact. Combining community impact research with rigorous financial analysis provides clients an added layer of transparency.

GIIN: How does CCM decide what community development initiatives to invest in?
BV:

CCM wants to know what others are doing in the market, and what we can do. We look at the overall economy and the state of different regions to identify community development needs and where there is a shortfall of capital addressing those needs. We stay well-versed on where the community development market is headed and what impact investors, venture capitalists, and socially responsible investors are targeting because there is a cycle in the market. For example, if venture capitalists are investing in a certain sector or area, it will be awhile before that activity filters through to fixed income.

GIIN: In what types of community development initiatives does CCM invest?
BV:

We invest in a wide variety of initiatives that respond to community development needs, such as affordable housing, job creation, and environmentally sustainable activities, and do not focus on one particular sector. We try to respond to current needs - for example, after Hurricane Katrina hit the U.S. Gulf Coast in 2005, we did a disaster recovery initiative with money in the Fund. A current focus is foreclosure mitigation and ensuring availability of adequate affordable rentals in lower-income communities.

GIIN:

Who are your clients?

BV:

In terms of assets, banks are our biggest clients, but our client base is becoming more diverse. Smaller institutions, wealth management firms, and family offices are realizing that they can participate in impact investing without a big capital commitment. These types of investors may not have a USD 10 million bond portfolio, but they may have USD 500,000 to target their desired impact to a specific geography or community initiative.

GIIN: How important is impact measurement to your clients?
BV:

Impact measurement is very important to our clients. Measuring impact for each investment allows us to show the cumulative effect of what we have accomplished over the past ten-plus years. We may have USD 1.5 billion in assets under management, but our total community development impact is over USD 4 billion. In addition, the ability to say, on behalf of our clients, that we have helped finance 10,000 home mortgages for low- and moderate-income families and invested $185 million in job creation and small business development makes the work we do more tangible.

GIIN:

How does CCM track and report social impact?

BV:

Tracking and reporting social metrics is important in this field. CCM uses a proprietary set of impact metrics because we work in a heterogeneous variety of projects and sectors. In addition, different clients ask us to report different metrics.

All of our clients receive both financial and impact reports. For example, if a client is a shareholder in the mutual fund's institutional share class and they have invested USD 5 million towards community development in Philadelphia, Pennsylvania, we then designate specific assets in the mutual fund to Philadelphia and provide that investor a report showing their community development impact.

For separate accounts, the quarterly impact report shows individual detailed descriptions of securities that were purchased in that period, as well as impact tracked over time. The impact report also provides an in-depth overview of the community benefits of each investment.

GIIN: What are important factors in the growth of the community development investment market?
BV:

Disclosure by the issuer of securities and disclosure by investment managers to investors regarding where investments will be made and their social purpose is critically important, which is why CCM is adamant about tracking and reporting impact metrics. We want to show our clients where we have invested their money and provide full disclosure. Impact measurement is a critical part of who CCM is and what we do.

GIIN: What types of trends to you see in impact investing? How have they evolved over time?
BV:

The trends have been favorable for impact investing. Banks, provided that the regulations do not change, will continue to do this type of investing in order to meet CRA requirements. Other clients are increasingly realizing that impact investing is a true fit within their portfolios. Individual investors are entering this space. Younger generations are bringing impact investing to older generations' attention, and they want their family's assets deployed to promote projects and missions in line with their values. We especially see this trend with the environmental movement, which has taken a huge leap forward in the past few years.

GIIN:

What are some challenges to impact investing?

BV:

Impact investing is still relatively new, and a large part of the investment community does not know what we do, what we care about, and why we do it a particular way. Many assume that if investments are socially or environmentally focused, then financial returns are sacrificed. There is the notion that if it feels good, it cannot be right.

Another challenge is that some institutional investors, such as pension funds, are resistant to enter this market because they think that engaging in impact investing means violating their fiduciary responsibility of maximizing returns.

Also, investing in lower-income communities is sometimes seen as a big credit risk. In practice we have discovered that this is not the case, and that credit risk may be eliminated with adequate due diligence. We did not experience significant changes in our portfolio during the credit crisis, and none of our securities have defaulted. Just because someone has a low-to moderate- income does not mean that they also possess a high credit risk.

GIIN: What advice do you have for those looking to begin impact investing?
BV:

Patience is key, because sometimes the enthusiasm for this market does not reflect the action. People must realize they cannot control the development of an entire market; they can do everything to encourage it and push it along, but there are forces out of their control, such as credit crises, home foreclosures, and bank failures. The key is to persevere through any setbacks, and keep on trying.

A note to readers from the GIIN:

Diversity is a hallmark of the impact investment market, which has attracted traditional financial institutions, pension funds, private foundations, government-funded development finance institutions, fund managers, high-net-worth individuals, and family offices. As a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing, the GIIN aims to bring transparency to this market and to the practice of impact investing. To this end, we believe it is in the interest of the field to share a sample of the diverse viewpoints held by investors who are motivated by social and environmental considerations. The publication of such diverse viewpoints, however, should not be construed as an endorsement by the GIIN of those viewpoints or the individuals or institutions expressing them.

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