In 1876, Alexander Graham Bell was awarded one of the most valuable patents in history. There’s little dispute of the impact of the invention of the telephone, but without the proper infrastructure provided by the Bell Telephone Company, the technology may never have reached the hands of most Americans. Bell Telephone, which later became AT&T, commercialized the technology and built much of the infrastructure that made all that possible.
Today, we are facing a similar moment in the U.S. Community Investing (USCI) landscape, with a growing group of inventors creating financial innovations to improve economic opportunities for low-income people and underserved communities. The industry has reached a point where it needs the right infrastructure to draw in new sources of capital and enable scale that will bring these innovations to bear on public challenges.
U.S. Community Investing (USCI), also known as place-based investing, includes many specialized products tailored to the needs of specific communities. Leading product managers are looking to take their customized solutions to scale, to go from hundreds of millions to billions in investment for community impact. As we build the infrastructure that will support this growth, we should expect the innovators in this space to be joined by those who can commercialize products and help take community investing to the broader marketplace, benefiting more people.
These are among the findings of a research study led by the Carsey School of Public Policy and the Global Impact Investing Network (GIIN), released on October 19, 2015. Over the last several months the researchers conducted detailed interviews and survey research and hosted convenings with both investors and those who manage USCI products. The study engages the Alexander Graham Bells of USCI and connects them with leading foundations and financial institutions to chart the next steps on the path forward.
Key recommendations involve developing a coordinated marketing effort and transaction platforms for future growth, with a focus on the following suggestions around implementation:
1. U.S. community investors should coordinate efforts for effective marketing, communications and investor engagement.
USCI is currently a small and fairly closed community in which major players know one another well, but may not be well-known outside their circles. To widen awareness of this field, practitioners could:
- Develop USCI products that ‘look and feel’ more like mainstream investment opportunities.
- Gather and communicate benchmark data on fund and asset performance.
- Communicate a fresh story about impact that is tailored to rising community development issues and each fund’s target demographics.
- Use risk-mitigating tools that enhance the “trialability”– the degree to which an innovation may be experimented with on a limited basis-of USCI for new investors.
- Collaborate with government and philanthropic sources to develop financial incentives for USCI.
2. Field leaders should work to develop investment platforms that package various USCI products into securities.
An effective platform offers many benefits, allowing practitioners to:
- Obtain CUSIP numbers (numbers identifying most financial instruments, including: stocks of all registered U.S. and Canadian companies, commercial paper, and U.S. government and municipal bonds) so that USCI securities are easier to buy, sell and report.
- Reduce transaction costs and therefore enable more investors to enter the market.
- Open more USCI opportunities to retail investors and mainstream wire houses.
We hope this research sparks more direct conversations between investors and USCI product managers as they continue to innovate across the USCI landscape, so that new and existing products may be effectively commercialized and scaled—and so that, ultimately, these products can better serve communities in need. Finally, the report helps us build from a rich past, as U.S. Community Investing has a long history. The USCI field has built unique expertise, relationships and funding models that the broader impact investing community could mine for valuable elements. The Carsey-GIIN report takes an important step to link this rich history with today’s impact investing conversation.
Read the Study: Scaling U.S. Community Investing: The Investor-Product Interface.