Minnesota foundations create investment fund for financial, social returns

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A group of Minnesota foundations, convinced its money can yield strong financial returns while still contributing to a greater social good, has invested $17.1 million in a first-of-its-kind mutual fund to bolster affordable housing projects and small business lending.

The Minnesota Council on Foundations is spearheading the effort, which it is calling an “impact investment collaborative.”

The approach is “intentionally seeking to create both financial return and positive social impact that is actively measured,” according to the World Economic Forum. Interest in this form of socially conscious investing has grown dramatically in the past few years.

Nearly a dozen local foundations — including the Mc­Knight Foundation, Bush Foundation and Otto Bremer Trust — have put money in the Minnesota-focused fund, created and managed by RBC Global Asset Management.

The ability to invest in Minnesota projects is new, said Janet Quarberg, managing director of institutional sales for RBC, even though the mutual fund — called the Access Capital Community Investment Strategy — was established in 1998 as a way for banks to meet requirements of the federal community redevelopment law.

“There has been renewed interest in trying to invest well and do good at the same time,” Quarberg said.

The RBC fund has put nearly $1 billion in affordable housing projects and small business loans in areas of need around the country.

Some examples of local investments include Winona Arms Assisted Living, a Winona facility that provides affordable housing with supportive services for seniors, and Gus Johnson Plaza, a 108-unit Section 8 apartment complex in Mankato.

The Minnesota-focused fund is targeted to institutional investors of any size.

Because the mutual fund invests in government-backed securities, it poses a lower risk for foundations trying to balance the desire to do good while at the same time preserving and growing their endowments, Quarberg said.

“There is a common misconception that impact investing is risky. With this, you get the best of both worlds,” she said.

“This is a great first step. Everything is government-backed. Make the move, be successful and if you want to continue to deepen what you are doing, you can take it to the next level.”

Minnesota foundations invest billions each year. The Bush Foundation has $896 million in assets, Otto Bremer $1 billion and McKnight $2.2 billion. Under federal tax law, they must pay out at least 5 percent of their annual value of investment assets for charitable purposes.

For years, many Minnesota foundations have individually explored investments that promised strong financial returns while benefiting local communities, said Susan Hammel, executive-in-residence at the Minnesota Council on Foundations.

“They were not aware of each other’s commitment to align their assets with mission,” Hammel said. “Over the last few years, we’ve been getting them together.”

Jennifer Ford Reedy, president of the Bush Foundation, said RBC’s mutual fund fits well into their overall portfolio.

“What is particularly notable is, this is a collaborative effort,” Reedy said. “That’s very Minnesotan to get together and partner in a way that is different.”