This report presents emerging sources of capital and strategies for community investing. Community investing is defined as investment capital that flows to underserved communities for developing economic growth, affordable housing, and small businesses ecosystems. The report highlights the importance of efficiently and impactfully deploying capital into these communities, particularly in the current backdrop of COVID-19 and social injustice. The report also acknowledges various structural challenges of financial intermediaries raising capital and emerging sources of capital.

Recommendations

To increase the flow and efficiency of investment capital into underserved communities, the report puts forth the following recommendations to the field:

• Investing in risk-taking capital: Investors need to take bold and early bets to send a positive signal to the market, including taking increasingly riskier positions in the capital structure with fewer restrictions, subordinate debt, equity stakes, hybrid approaches, and long-term and flexible capital.
• Streamlining the capital raising process: Financial intermediaries require a more predictable investment approval process from investors to streamline the capital raising process and deploy capital efficiently.
• Focusing on investment professionals’ skills: A successful and efficient community investing strategy requires investment professionals who bring rigor to the investment process and have the necessary knowledge of community economic development and the importance of a formalized investment process.
• Overcoming poorly defined market segmentation: Investors must be knowledgeable about the nuances of the field across impact themes and geographies, types of capital, and risk and return profiles.
• Incorporating community investments in traditional portfolios: The unique position that community investments hold requires investors to make the case for why existing investment orientations should shift to accommodate a new community investing strategy.
• Weighing investment strategies’ various factors: Investors should weigh the various factors in deciding which community investing strategy is most suitable for their goals, but fiduciary duty considerations may limit their investable opportunities.

ESG issues

The report touches on ESG issues, such as social inequality, affordable housing, and community development. The ongoing crises of the COVID-19 pandemic, economic downturn, racial injustice, climate change, and threats to democracy have created a sense of urgency around engagement in community development. The report discusses emerging sources of capital through corporates, client solutions, and community-driven investment. The report recommends overcoming the structural challenges of financial intermediaries raising capital, investing in risk-taking capital, and incorporating community investments into traditional portfolios to enhance ESG goals.