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$20 Million Impact Investment for Affordable Housing and Small Business in Minnesota

by Susan Hammel, CFA, MCF Executive in Residence for Impact Investing

Minnesota is famous for its Midwestern modesty. Despite all efforts to stay under the radar, our philanthropic community is leading the nation once again. In fact, with $18.6 billion in foundation assets, Minnesota is a powerhouse on the national impact investing scene.

Working together, with leadership from the Minnesota Council on Foundations (MCF), we have launched a $20 million impact investing collaborative to benefit affordable housing and small businesses in our state. Already, there is more than $17.1 million committed to the collaborative, and the fund is on track to exceed $20 million. The money is invested in a fixed income bond fund focused on affordable housing and small business lending throughout Minnesota. 

Long known for their generosity and innovation (Minnesota consistently ranks near the top for charitable giving), forward-thinking foundation leaders asked, what if we could access our invested capital for mission? Sometimes referred to as “the other 95%” (since most foundations follow the 5% giving budget set by the IRS), they wondered if they could put this additional money to work generating a financial return AND a social impact, also known as “impact investing.”

Minnesota's Secret Sauce
People ask, "What’s your secret sauce in Minnesota?" As Senator David Durenberger, former Citizens League board chair said, “Minnesota combines Scandinavian idealism with Yankee practicality.” In other words, our foundations didn’t just talk about the idea of investing for good, they explored how it would actually work with investment dollars on the line. Using investment capital means all the usual fiduciary rules and expectations apply. Would this fly with the investment experts, trustees, officers, committees, financial advisors and investment consultants who advise foundations?

At the May 2016 Mission Investors Exchange bi-annual conference in Baltimore, Minnesota attendees heard about the Michigan Council on Foundations impact investing initiative. The 11 Minnesota leaders wondered: Could such an effort work in Minnesota? Thanks to Bush Foundation’s support for MCF's Executive in Residence program, we had the resources to explore the idea.

In September 2016, 12 foundation leaders gathered at MCF to discuss investing together to benefit our region. The presence of these critical influencers helped everyone get comfortable with the concept. Their idea would help other foundations get involved in impact investing, bring more impact capital into the region and strengthen the market for affordable housing and small business securities. The beauty of the initiative is that it appeals to the diverse interests and requirements of all types of foundations, from those who are brand new to impact investing to those who’ve been doing it for decades.

Three Leaders Anchor the Collaboration
Leading the way for others to invest are the three lead anchor investors: The McKnight Foundation, the Bush Foundation and Otto Bremer Trust. Each of these lead anchors bring their own perspective and requirements to the table. The Otto Bremer Trust has been impact investing for decades through its regional banking network and program related investments. For Elizabeth McGeveran, who heads impact investing for The McKnight Foundation, this impact investing collaborative fits nicely into its strategy to align more endowment capital with mission and build the impact investing field. Having funded MCF’s impact investing executive in residence program, the collaborative fit the Bush Foundation’s interest in supporting private sector solutions to community problems.

As part of her futurism work MCF President Trista Harris predicts that activating 100% of foundation assets for mission will become the rule rather than the exception. Over and above charitable giving, accessing endowment and corpus capital means more money working for good in our communities. Together with the MCF team led by Alfonso Wenker, I am thrilled to see our philanthropic community stepping up to make the future happen here NOW. In fact, MCF is not just leading and coordinating this initiative; they’re investing a portion of their investment capital as well.

In addition to the three lead anchors and MCF, there are at least eight other first-mover foundations actively bringing this opportunity through their internal review processes. These include the Initiative Foundation, The Minneapolis Foundation, Mortenson Family Foundation, PFund Foundation, Schnieders Family Foundation, Sundance Family Foundation and other community foundations, small family foundations and rural-based foundations. 

Update, as of 2021
Learn more about MCF's impact investing collaborative. By 2021, the collaborative fund, known as Minnesota Impact Investing Initiative (MI3), has surpassed $100 million in investments.

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