DETROIT, March 18, 2019 — The Kresge Foundation announced Monday it will partner with two established impact fund managers and provide $22 million in investments to anchor their emerging Opportunity Zone Funds, after these managers have agreed to a level of transparency, accountability, and disclosure thus far unheard of in the Opportunity Zones space.
Together, these managers expect to raise and deploy more than $800 million in capital nationally into Census tracts designated as Opportunity Zones.
Boston-based Arctaris Impact and Fort Lauderdale-based Community Capital Management (CCM) will each receive a guarantee from Kresge that provides risk mitigation and first-loss protection to their Opportunity Zone Funds. These guarantees will look to improve the risk-return profile of these funds, making them more attractive to investors seeking social and financial returns, along with the benefit of principal protection through the foundation’s guarantees.
The Opportunity Zones incentive was created as part of the 2017 tax reform legislation. This incentive’s goal is to direct hundreds of billions of dollars of investment into low-income communities. But as written, the law includes virtually no transparency, accountability, impact requirement, or disclosure on investments made using the incentive.
In the absence of a regulatory mandate, Arctaris and CCM have committed to making investments that reflect the stated social and community goals of the Opportunity Zones program and address unmet needs in under-resourced communities.
Both firms have agreed to covenants that go beyond what’s required in the Opportunity Zone legislation, including measures that: prioritize the development of affordable housing units and prevent displacement; invest in the creation of living wage jobs; and prohibit non-productive investments such as those into self-storage facilities. Managers will also form community advisory boards similar to those required in the New Markets Tax Credit Program.
These covenants complement the principles put forward in the Opportunity Zones Reporting Framework, developed in part through Kresge grants to the U.S. Impact Investing Alliance and the Beeck Center for Social Impact and Innovation at Georgetown.
“Opportunity Zones will only be a positive force in low-income communities if paired with responsible investing principles,” Kresge President & CEO Rip Rapson said. “This legislation was passed without minimum transparency or reporting guidelines, permitting a ripe opportunity for misuse. Nearly a hundred are rumored to be currently seeking investment. Because of our mission to expand opportunity in low-income communities, Kresge has decided to put into action and model for other investors how solid deals can be constructed to meet the needs of investors and communities alike. Our intent is to establish proof points at scale to demonstrate that there is a responsible way to implement this incentive.”
Both Arctaris Impact and Community Capital Management were selected from a pool of more than 140 proposals that were submitted through a call for letters of inquiry in 2018 from Kresge in partnership with the Rockefeller Foundation.
“The level of transparency and reporting Arctaris and CCM have agreed to have set the standard for what investors should ask for before committing dollars to Opportunity Zone Funds,” said Kimberlee Cornett, managing director of Kresge’s Social Investment Practice, which has a $350 million impact investing pool. “These firms are already established leaders in the impact investing space, and we’re thrilled they are taking up a leadership position in this new market. Our desire is to signal strong public endorsement of these funds to potential investors who care about getting it right and acting with the best interests of low-income communities in mind.”
CCM, an impact investing manager with two decades of experience, will receive a $7 million guarantee commitment for its National Opportunity Zones Fund, which will provide equity investments into projects that support one or more of CCM’s existing 18 impact themes. The Fund will seek to assemble a erse portfolio of investments in Qualified Opportunity Zone businesses and is targeted to attract $300 million from investors.
“The Opportunity Zone Program represents a unique way to bring new investors into the impact investing arena. The tax advantages may draw people in, but they may be pleasantly surprised by the positive impact outcomes that are as rigorous, granular, and transparent as traditional financial reporting,” said David F. Sand, CCM’s chief impact strategist. “The covenants we have agreed to might not be required by legislation or regulation, but we believe they should be – we are going above and beyond to demonstrate to the market what this can look like when done right.”
Arctaris, which manages four impact funds focused on operating businesses in low-income communities, has received from Kresge $15 million in guarantee commitments to provide principal protection to its Opportunity Zone Fund, pending final IRS guidance on business investments expected in the coming days.
Leveraging the Kresge guarantee, Arctaris plans to launch a principal-protected Opportunity Zone fund with more than $500 million in initial capitalization from U.S. commercial banks, institutional investors, and family offices. Supplementing Kresge’s catalytic support, Arctaris expects to secure additional guarantees and grants from other foundations and state government economic development agencies. The Fund will make growth equity investments in small- to medium-sized enterprises involved in manufacturing, renewable energy, and telecom, as well as real estate infrastructure.
Arctaris is advised on compliance by Steve Glickman, the founder of Develop LLC and one of the architects of the Opportunity Zones program. For Impact Measurement, the firm has partnered with Harvard Business School Professor Michael Porter‘s Initiative for a Competitive Inner City (ICIC), and its CEO Steven Grossman has joined Arctaris’ investment committee.
“Arctaris has been investing in the same geographic areas now referred to as Opportunity Zones for more than a decade, and we’ve seen first-hand how businesses located in these communities have faced systemic challenges and barriers to growth capital, which restricts job creation,” said Jonathan Tower, Arctaris managing partner and co-founder. “In some target cities, most local businesses have already fled. This Fund seeks to provide capital and incentives to bring them back — accelerating the growth of existing businesses and attracting companies from elsewhere to set up new offices or build factories. The Opportunity Zones legislation has encouraged Arctaris – and hopefully other investment managers – to use Wall Street’s tool box for the common good as funds are formed with community impact at their core.”
The Kresge Foundation was founded in 1924 to promote human progress. Today, Kresge fulfills that mission by building and strengthening pathways to opportunity for low-income people in America’s cities, seeking to dismantle structural and systemic barriers to equality and justice. Using a full array of grant, loan, and other investment tools, Kresge invests more than $160 million annually to foster economic and social change. For more information visit Kresge.org.
Arctaris is a Boston-based impact investment fund manager focused on revitalizing disinvested cities and targeted rural communities. The firm has launched and managed four funds over 10 years through partnerships with institutional investors, CRA banks, foundations, the U.S. Treasury Department, and state economic development agencies. For more information visit www.arctarisimpact.com.
About Community Capital Management, Inc.
Community Capital Management, Inc. is an investment adviser registered with the Securities and Exchange Commission. Headquartered in Fort Lauderdale with employees in Charlotte, Boston, and the New York City area, the firm was founded in 1998 and manages over $2 billion in assets. The firm believes a fully integrated portfolio – one that includes environmental, social and governance (ESG) factors – can deliver strong financial performance while simultaneously having positive long-term economic and sustainable impact. CCM’s strategies utilize an innovative bottom-up approach to fixed income and equity investing combining the positive impacts of impact/ESG investing with rigorous financial analysis, an inherent focus on risk management, and transparent research. For more information, please visit www.ccminvests.com.
SOURCE The Kresge Foundation