Invest4All: A Fund for Communities of Color in the South
In 2018, Prudential Financial was approached by Annie E. Casey Foundation and Kresge Foundation to develop a fund for communities and entrepreneurs of color in Memphis, Atlanta, and New Orleans. Below is a Q&A with Daryl Shore of Prudential Financial, exploring how that fund emerged and how it relates to Prudential's overall commitment to racial equity.
What is Prudential Financial's overall strategy when it comes to racial equity — in impact investing and in its other practices?
Daryl Shore, Manager, Impact Investments, Prudential Financial, Inc.: Prudential was founded on the idea that everyone should have the opportunity to achieve financial security and peace of mind for their families. Our story started more than 140 years ago with John Dryden, our founder, who had a radical idea: to offer life insurance to working families. It went against the standard concept of business at the time. There was a prevailing belief that working people couldn’t be trusted to pay premiums. So, who would ever focus on a “market” that may not offer significant profits. As one of the leading financial services corporations we have access to capital that we can deploy to help foster inclusion and create inclusive pathways for unmet needs in underserved areas of the country. In addition, we work with our colleagues across our business lines to identify ways our services, products, and operations can bring more opportunities for a broader set of stakeholders. As one of a small handful of Fortune 100 companies whose global headquarters is still located in its founding city, we have been committed to investing in Newark and in the last decade alone have committed more than $1 billion. This experience gives us a set of values and a point of view that are a key differentiator for Prudential and drives everything we do as a business.
Prudential has a long-term commitment to foster access and inclusion and to address the underlying barriers to a more equitable society. This commitment includes the recognition that capital gaps across racial or gender boundaries exist in the traditional capital markets. We are allocating capital to actively combat these inequities and have developed a comprehensive approach that includes:
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A $25M commitment to fund venture capitalists of color, which is one of the least diverse segments of the financial services industry;
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A $1.1B portfolio of emerging asset managers, which are growing firms founded and run by women and executives of color that show strong track records and great promise of financial return; and
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Actively placing cash deposits and other liquid assets with Minority Depository Institutions across the country totaling $50M in current deployments.
How does Invest4All fit into Prudential's overall strategy?
Daryl: The Invest4All partnership with the Kresge and Annie E. Casey Foundations builds upon our history and continues our work around advancing equity. We know that traditional financial markets do not work well enough for low income communities of color. The predictable result is that entrepreneurs of color find it hard to access capital, unemployment is higher, and residents have fewer opportunities for achieving financial wellness. Under this partnership, Prudential is committing up to $100M in investment capital and the Foundations will provide up to $30M in guarantees for a $130M total initiative. The guarantee from Kresge and Casey will allow Prudential to invest in financially appealing opportunities that may lack the track record and collateral of traditional investments. The goal is to help entrepreneurs of color and socially impactful organizations build a track record and attract other sources of capital from local banks and regional investment funds.
The potential investments will follow three thematic verticals:
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Community Commerce – Build and preserve local financing capacity and diverse community-facing enterprises
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Inclusive Local Real Estate Development – Spur inclusive local real estate development that considers ownership, hiring practices, property management and use
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Innovative Capital Solutions – Provide capital and other solutions to underserved individuals that lead to economic opportunity
Kresge Foundation and Annie E. Casey Foundation approached Prudential Financial about starting this fund. What was the rationale for partnering with Prudential on this project?
Daryl: Prudential Impact Investments has a set of values in alignment with those of our partners. We are also known as a strong originator of investments and have networks and pipelines that complement those of our partners.
Prudential has been in the impact investing space since 1976. As a stand-alone impact investing unit, we have made more than $2 billion investments since that time. All of our investments are made with an overall emphasis on supporting economic and social mobility for underserved populations. As mentioned previously, the proposed dollar commitment under the Invest4All partnership is $130 million, which includes up to a $100 million investment commitment from Prudential and up to $30 million in guarantees from both foundations (combined) with the goal to spur investments in certain cities that create more equitable opportunities for minority, low income populations. We are specifically concentrating our efforts in places where barriers in access to capital are more acute and where one of the three partners have an existing portfolio of investments to build from, including Memphis, Atlanta, and New Orleans.
Why were guarantees needed to make this fund possible?
Daryl: Guarantees are financial commitments that require the guarantor to make payments to the guaranteed party based on a triggering event, such as a payment default or other event of default. From the perspective of an investor, they are incredibly valuable since they enable the investor to make highly risky investments with the knowledge that a certain portion of losses will be recovered through the guarantee. This is particularly important for impact investors that seek to make catalytic investments in untested business models or in underserved communities where certain risks are unquantifiable and therefore often result in continued disinvestment. Therefore, the intent of this partnership is to unlock investment capital that otherwise would not be available without this loss protection.
What advice would you give to investors seeking to do a similar project?
Daryl: Partnerships like this can be a key tool for addressing inequities. It is important for investors to first recognize that capital gaps across racial and/or gender boundaries exist in the traditional capital and banking markets. While we are excited about this partnership we know that it will take hard work on both sides to make sure that it is successful to deploy the capital and to make sure that we will move the needle to address inequities.
