The Power of Catalytic Capital: View the Day 2 Plenary from the MIE 2018 Conference

Catalytic capital includes "loans, investments, and guarantees that are more flexible, more patient, more risk tolerant — but with maybe a little less return," noted Julia Stasch, president of The John D. and Catherine T. MacArthur Foundation. How are foundations activating this valuable resource, and what are the results?

 

Attendees at the Mission Investors Exchange 2018 National Conference gathered to discuss the concept of catalytic capital and how foundations are innovating their impact investing practice to be catalysts for change in their communities. As a leading practitioner in catalytic investing, Stasch moderated a plenary panel on the second day of the conference, which featured foundation presidents Carol Larson of The David and Lucile Packard Foundation, Christine Márquez-Hudson of The Denver Foundation, Rip Rapson of The Kresge Foundation, and Dr. Rajiv Shah of The Rockefeller Foundation.

 

See below for the plenary recording and session highlights.

 

 

 

MacArthur Foundation, Kresge Foundation, Annie E. Casey Foundation, and others have long used guarantees to leverage their foundations' balance sheets. Guarantee investments serve to reduce risk or increase flexibility for other potential investors. However, the funds are only used if and/or when they are needed over a limited period of time. Until needed, the guarantee amount remains invested along with other foundation assets, thus earning a return for the foundation while simultaneously working to attract other investors to high-impact projects. (See the 2018 MIE Member Investment Gallery for examples of innovative uses of guarantees.)

 

During the Plenary, Rapson briefly described the Kresge Foundation's further efforts to innovate around this product by developing a "guarantee bank," a guarantee pool that will ultimately serve as the first domestic, multi-investor guarantee facility. To learn more, visit here.

 

We don't have to "go it alone," said Larson, recognizing that collaboration is critical to addressing the urgency of our challenges on climate change and the conservation of Earth's resources.

 

Packard Foundation is particularly focused on exploring collaborative investing and is looking to create a "fund of funds" for sustainable land use. Agricultural practices are the second largest contributor to greenhouse gas emissions, noted Larson, and we cannot shift land use without shifting investment practices. (See the 2018 MIE Member Investment Gallery for Packard Foundation's investment in Ecotrust Forest Management, an innovative example of supporting market-based solutions in this area.)

 

There is an urgent imperative to understand public policy’s role in supporting meaningful impact, noted Shah. Although Rajiv's remarks offered a call to action for the foundation community to engage more deeply in policy overall, his comments primarily focused on the catalytic potential — and risks — of the Opportunity Zones (OZ) Program.

 

The OZ program (common shorthand for the Investment in Opportunity Act) is a recently-developed tax incentive strategy intended to spur long-term investments in low-income census tracts in the U.S. The new program allows taxpayers to place unrealized capital gains (a profit from an investment that hasn’t yet been sold) into Opportunity Funds (O Funds) that invest in designated census tracts. In exchange, these investors receive significant tax benefits on those gains. Foundations can play a valuable role in keeping impact at the heart of the program, convening stakeholders, supporting evaluation and monitoring, supporting local investing, and more. (See MIE's resource page on the program for further detail.)

 

Attracting investments and achieving scale are only part of the picture. Community foundations, noted Márquez-Hudson, play a powerful role in effectively implementing place-based investing programs like Opportunity Zones, by bringing awareness about local dynamics, leveraging resources, and monitoring impact. Márquez-Hudson went on to describe the Denver Foundation’s partnership with eight investors—including MIE Members Living Cities Catalyst Fund, Northern Trust, and Walton Family Foundation—to make an $8.6 million Pay For Success investment to fund a supportive housing program for 250 of Denver's most frequent users of the criminal justice system. Click here for more information on the investment, as well as an Urban Institute report on early results.

 

Márquez-Hudson urged the audience to consider community foundations as partners in building bridges to local networks and organizations across the country. “Community foundations can be those important connectors for the projects that really can achieve social impact and advance the missions we all have.”