Giving Compass' Take:

• Northwest Area Foundation was pleasantly surprised with the ease with which they found impactful investment opportunities in small communities that offered market rate returns. 

• What is holding back many investors interested in impact? How can investors help each other get connected with strong opportunities? 

• Learn why B Corps And Benefit Corporations are good investment opportunities. 

There are many options for foundations to make these private mission investments and earn relatively low financial returns. But as foundations open more of their endowments to mission investing, they want more market-rate mission investments.

Conventional wisdom says it is tough to find these “institutional-quality” private mission investments outside of urban centers, where all the cool companies and funds are located.

Northwest Area Foundation (NWAF) is challenging conventional thought.

In 2014, the NWAF board asked the foundation’s Investment Director Amy Jensen to find $30 million of market-rate mission investments for its roughly $400 million endowment.  To do so, she had to find funds and managers investing in companies that “advance good jobs and financial capability” in the mostly rural eight states that NWAF serves—and with good returns.

Soon she found Stone Arch Capital in Minneapolis.  Mapping the investments in their first two funds, Amy noted that Stone Arch places a lot of capital in rural communities.  In fact, Stone Arch specializes in helping retiring owners sell mid-size companies, mostly in smaller communities. This caught Amy’s attention because losing companies when owners retire is a significant economic issue for the more-rural communities that NWAF serves.  Amy also noted that Stone Arch’s financing had never resulted in a company leaving its home location, which is another important issue for rural communities.

Amy began talking with Stone Arch about its economic impact.  She found strong job creation and other impacts that NWAF sought. Stone Arch was willing to track those impacts, and ultimately NWAF invested $5 million in a Stone Arch fund.  The firm is not identified anywhere in its marketing as an “impact fund.”

Read the full article about market-rate returns in impact investing by Rosalie Sheehy Cates at Philanthropy Northwest.