For decades, the Annie E. Casey Foundation has sought creative solutions to ensure that every child in America has the chance to realize his or her full potential. Six years ago, for example, the foundation made a loan to help finance affordable housing developments that would give homeless families and young people a permanent roof over their heads. People usually don’t think of the foundation as a lender. But we knew how important stable housing is in a child’s life—and the power of programs that not only provide a home, but also equip individuals and families with the tools and skills necessary to achieve stability. We also knew the challenges families face in finding quality affordable housing, which is often limited in supply. And we knew this particular strategy could eventually extend to communities across the United States.
That potential for large-scale impact—and close alignment with our mission to build brighter futures for children, families, and communities—continually drives our social investing, or what some call mission or impact investing. That loan we made six years ago to the Corporation for Supportive Housing was initially focused on specific geographic areas and supported 142 new homes. Last year, when the organization sought to expand its work, we modified our loan, enabling the nonprofit to leverage almost $30 million toward creating 9,000 affordable housing units.
Casey began exploring social investing in the late 1990s as a way to put even more assets to work in advancing our mission, without jeopardizing the foundation’s long-term viability. We saw this kind of investment, using a percentage of our endowment to finance projects beyond the limits of our grant budget, as another tool in our multipronged efforts, which included traditional grantmaking, direct consulting, and technical assistance for public systems, grantees, and other partners.
Nearly two decades later, social investments remain integral to achieving Casey’s mission, allowing us to use all our assets to improve the lives of children and families. Our allocation for social investing, which has gradually increased over time, now stands at 4 percent of our endowment. Since 1998, the foundation has cumulatively invested $161 million in debt, equity, and cash deposits, and guaranteed another $64 million. The funds and projects in which we’ve invested have raised an additional $1.6 billion from private and public sources.
Social Investments: Our Approach
Casey’s social investment portfolio puts mission first, prioritizing opportunities that directly align with our core grantmaking strategies: strengthening families and communities, increasing economic opportunity, and promoting the take-up of proven and promising programs and practices. This mission-first focus requires some creativity and flexibility so that we can achieve our social and financial return objectives.
After the foreclosure crisis in 2008, for example, we explored ways to enable individuals and families to remain in their homes and preserve community stability. We used our social investment portfolio to make loans to three community development financial institutions (CDFIs), each of which supported loan products with different approaches to mitigating the harmful effects of the crisis on kids, families, and neighborhoods.
At the same time, we’ve made a limited set of direct investments in response to situations as they arise, especially when our financial support helps get a project central to our grantmaking off the ground. This was the case for a $21.25 million loan to help build a new K–8 school in East Baltimore.
Our practice of investing through well-established CDFIs and other intermediaries has shown that impact investing can yield a financial return even as the mainstream market fluctuates. Indeed, our returns have consistently outperformed our performance benchmark. More importantly, our investments in multiple funds over the past decade have helped strengthen families and communities, resulting in more than 4,000 affordable housing units and 12,500 quality jobs.
What We’ve Learned—and What’s Next
The financial and programmatic success of Casey’s social investments is the result of careful, hard work to build a robust and diverse portfolio that achieves significant results. We’re using what we’ve learned over nearly two decades to inform how we move forward.
Keeping mission first. One key to our success has been close collaboration between investment and grantmaking staff in determining which investments to pursue. Our investment staff brings technical expertise in structuring transactions, while program officers provide insight on what our choices mean for kids, grounding decisions in our mission. This combination of knowledge and experience also helps reduce risk, as program officers often provide technical assistance, grants, and other support that can mitigate the potential for losses.
Still, we have struggled with measuring the impact of these investments, which is particularly challenging for a foundation that consistently strives to use data to inform and drive decisionmaking. With flexible reporting standards and limited benchmarks for measuring impact in the field, we lack a well-defined, consistent approach to gauging how well the portfolio is advancing our mission. Yet we see the potential of resources such as the Global Impact Investing Network’s Impact Reporting and Investment Standards and new CDFI standards to help us get there. Our next step is deciding how best to apply these metrics consistently, which then will allow us to establish realistic targets and set benchmarks.
Taking risks. Even as we’ve sought solid financial and social returns, we haven’t shied away from taking risks—something we feel philanthropy is well-positioned to do. We’re willing to invest in promising, innovative efforts even when the odds of success are long. And we’ve seen those risks pay off, as in the case of our housing investments.
We recently invested in a start-up nonprofit social enterprise that has been an important partner in our programmatic investments to promote child welfare system reform. The enterprise developed an assessment tool to measure the well-being of kids in the child welfare system, and the effectiveness of the treatment they receive from public and private agencies.
Yet although this start-up has a solid track record in working for and cultivating clients, it has little experience managing growth—juggling the need to earn profits, establish efficient and cost-effective ways to support operations, and continue meeting the requirements of child welfare agencies. The foundation has therefore provided grant support to build its capacity to those ends, in addition to making a quasi-equity investment that will give the fledgling organization the necessary working capital to manage day-to-day operations. As the nonprofit tracks outcomes over time, we will have rich, meaningful data on the impact of our investment.
Becoming more strategic. Our portfolio has evolved organically, responding to needs as they emerge in our grantmaking. We want to actively pursue social investments that could further advance our primary work along with new ones that may not fit squarely within Casey’s focus areas.
Experienced fund managers, for example, are creating impact investment products that could improve child well-being in areas beyond our priorities. Investing in these products, with a range of time horizons for debt repayment and exiting equity, will enable Casey to fully allocate to social investing while seizing opportunities as they arise. One such product is the US Community Investing Index, which identifies companies that bolster low-income communities. Although the index is too broad to link to our program strategies, its purpose certainly aligns with our mission.
We’ve been pleased to see dramatic growth of the impact investing field, with more philanthropies, individuals, and private corporations committing resources in this vein. Philanthropy should lead the way in continuing to emphasize the core values of social investing, even as the movement continues to evolve.
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Read more stories by Patrick McCarthy.