Private impact investing offers solutions to counteract the very tangible effects of a climate in crisis, income inequality, and systemic structural racism.
The number of opportunities has grown alongside the evidence that investing for impact — that is, for an environmental or social as well as financial return — can play a strong role in creating long-term systemic change. At Reynders, McVeigh Capital Management, we define impact investing as private-placement investments that are expected to at minimum recycle capital, while also producing a measurable environmental or social return. We assess these investments with three criteria: financial risk, financial return, and social/environmental impact. Our practice has grown over time to include a wide variety of asset classes and areas of impact, with more than $77 million of client funds invested for change.
Threats to the CDFI fund
Community Development Financial institutions (CDFIs) are mission-driven banks, credit unions, and loan funds that play a critical role in underserved communities. Originating in the 1970s, they reached $436 billion in assets by the end of 2024. Supported by both sides of the political aisle, CDFIs have been a fundamental way to build financial wealth through small business loans, homeownership, and credit building.
Loans to CDFIs are a key way that Reynders, McVeigh clients are able to engage in tangible impact in their portfolios. From the affordable housing loans under Century Housing to the small business loans via LISC, Reynders clients have put hundreds of millions to work over the past 10 years.
The U.S. Treasury houses the CDFI fund, which offers grants and technical assistance to CDFIs nationwide for operations and loans and certifies those institutions as serving the mission they espouse. It was founded under President Clinton in 1994 and by 2025, the federal allocation to the CDFI fund was $324 million. The current administration has placed a target on the fund as an example of wasteful government spending. CDFIs and their champions (including Reynders, McVeigh) went straight to their congressional representatives to speak for the importance of CDFIs to low-income communities, especially recently during the pandemic recovery. Opportunity Finance Fund, of which Reynders McVeigh is a supporting member, led this charge. To learn how you can lend support, visit https://www.ofn.org/news/ofns-statement-on-the-white-house-proposed-budget.
Activating the 95%: Foundations and DAFs moving money into impact
Foundations are required to grant 5% of their corpus every year to nonprofit organizations that match their mission. But what happens to the 95% of assets that remain? How are those funds invested, and might they be at counter purpose to the impact the foundation is trying to have on the world? These questions continue to surface for foundations, as well as for donor-advised fund (DAF) holders that maintain a balance before giving away their funds.
In 2023, foundations gave away $103.5 billion. But that means that there is likely an additional $2 trillion in corpus assets invested by these foundations. DAFs held more than $251 billion in assets yet to be given away. Mission‑driven investors can help to activate these huge sums by considering a social or environmental purpose alongside a financial return – or at minimum, they can take care not to counteract the intended societal impact the grant side is serving. Many representatives of impact finance are pushing to create diverse options, either by creating funds (like Social Finance has) or vetting opportunities for the major DAF platforms (like CapShift has). In addition, community foundations like The Boston Foundation, Cambridge Community Foundation, and Essex County Community Foundation are beginning the exciting work of offering local impact opportunities for their DAF holders to amplify the work their donors are already committed to. In this way, donor-advised funds already destined to have social impact can boost their efforts rather than sitting on the sidelines without a conscious plan.
Pairing Impact Investments with Grants
How can impact investors better support the organizations they care about? One way is to pair impact investments with grants (or “gifts” of capital).
Each method comes with its own opportunities and challenges. Impact investments bring capital to organizations that can loan it out to support communities in a range of ways, such as assisting small businesses, providing mortgages for new homeowners, and offering an alternative to predatory loans. Yet this capital also comes with the expectation of repayment, often along with financial returns. Organizations may also be required to provide ongoing reporting on their progress.
Grants are given without the expectation of repayment and increase an organization’s ability to be flexible, and to invest in their own internal systems. Increasingly, philanthropists and foundations are advocating for unrestricted gifts of capital – grants that do not specify a particular focus. With unrestricted funds, nonprofits can spend money on operating costs, such as staffing, technology, and marketing. Charity Navigator describes unrestricted giving as “a show of trust” that allows organizations the control over putting resources to use. Although funders may be hesitant to fund “overhead” (administration and marketing expenses), an underinvestment in these areas creates negative outcomes, which can influence the organization’s social impact goals. This type of funding can also give nonprofits additional flexibility during periods of uncertainty, to use the funding in whichever area is the most pressing.
Pairing an impact investment with a grant allows investors to support both the external and internal work of a mission-driven organization. It offers a possibility of increasing impact, while also supporting the leaders and staff who drive that work forward.
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DISCLOSURE: The views expressed in this newsletter reflect the current, good-faith opinions of Reynders, McVeigh Capital Management, LLC (“Reynders, McVeigh”) as of the date of publication and are subject to change without notice. This commentary is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security.
Any references to specific impact investments are for illustrative purposes only and were selected on an objective, non-performance-based basis to support the views discussed. These investments represent a portion of Reynders, McVeigh’s current impact investment recommendations made on behalf of advisory clients. They do not reflect the full range of investments we may recommend, nor should they be assumed to be profitable or suitable for all investors. Past performance is not indicative of future results.
Investment decisions should be based on each investor’s individual circumstances, including financial situation, goals, time horizon, and risk tolerance. Certain impact investments discussed may involve private, non-public offerings available only to accredited investors. These investments may carry higher risk and volatility compared to publicly traded securities and may be subject to less regulatory oversight.
Clients and prospective investors should carefully review offering documents and other disclosures for any private investment under consideration. We strongly encourage you to consult your portfolio manager to evaluate the suitability and risks of any investment strategy or security discussed in this newsletter.