SOCIAL TOPICS (Archive): COMMUNITY DEVELOPMENT INVESTING

Published, August 1996

       We at United States Trust Company (USTC) have embarked on the exciting process of formalizing a service to assist clients who wish to invest directly in community development banks and loan funds. For many of us, as social investors, the ultimate measure of success is the lasting creation of economic activity, the purpose of which is a social good. In the history of social investing, one stellar and burgeoning success has been the creation of community development finance institutions, primarily banks and loan funds. As financial intermediaries, these organizations have provided the successful catalyst for the creation, primarily within lower income communities, of both new enterprise and housing.

       While our individual and institutional social clients have invested periodically in community development in the past, (for example, depositing over $1 million at South Shore Bank), today a critical mass of clients are eager to direct a substantial portion of their portfolios primarily into the activities of these financial intermediaries. USTC staff have embarked on developing the necessary procedures to make this happen.

       In fulfilling these clients’ needs, we will provide two avenues of investing open to all: first, insured, market-rate instruments with institutions such as South Shore Bank of Chicago, Community Capital Bank of Brooklyn, and Self-Help Credit Union of Greenville, SC; and second, below-market rate investments, primarily in community development loan funds which typically offer interest in the 0 to 3% range. We will offer three different choices of return: insured market-rate investments (currently about 5%), current inflation protection (approximately 3%), and/or no more than a return of capital (i.e. no interest). Clearly, the lower the rate of financial return to the investor, the greater the potential community economic development impact.

       This fall we will begin providing socially responsive clients with the opportunity to invest in at least three insured investments and about a dozen loan funds. We are now in the process of gathering information from the community development financial intermediaries to identify those with whom we will work, and developing methods to simplify the communications that will inevitably develop with these social investments.

       Our review process will identify loan funds and banks with an established history and a demonstrated need for and use of capital, including a high quality flow of prospective borrowers. The intermediaries will also have acceptable auditing and financial reporting. We expect to suggest a diversified mix of funds both to lower risk and to accommodate varying preferences, including intermediaries from a variety of locales, addressing different issues. Though ours is not a due diligence effort, our intention is to facilitate investments in only those better quality, established organizations that meet these criteria.

       Investments will be a minimum of $3,000 per issue of each institution. We will offer a selected mix of deposits and loan fund investments on a quarterly basis with entry into each bank or credit union twice a year, and into each loan fund once a year. Maturities typically will be three or five years for the loan funds and one, three, or five years for certificates of deposit. Our effort will be coordinated by Kristin Finn, our senior social research analyst and Values editor, and supported by Linda Berkel, Scott Klinger and Stephen Moody.

       In the spirit of our clients’ willingness to accept a below market rate of return, USTC will not charge a fee on below market investments unless they exceed 5% of a portfolio.