Private to Public; Institutions to Individuals

Special to the Philanthropy Journal

By Louise Herrle, Incapital LLC

Nonprofits, including community development financial institutions (CDFIs), are entering a new era of capital raising. Historically, nonprofits have largely secured financing from benefactors, grants, loans or private placements, leaving their fates largely in the hands of institutions and institutional investors. As many organizations grow and require larger amounts of capital to have greater social impact, they may be able to explore options that expand beyond traditional financing methods.  

We have seen two trends emerge that have been shaping the opportunities for organizations to grow and achieve the ambitious goals they set for themselves: an increased desire by individual investors to become more involved in Environmental, Social and Governance (ESG) investing; and the ability of nonprofits to access the capital markets through public bond issuance.

Increasing Investor Demand

A recent survey[1] by Calvert Research and Management and InvestmentNews showed that 35% of financial advisors consider ESG factors when constructing client portfolios. The survey further explains that trend is expected to gain momentum as more Millennials start flexing their investment muscles.  The first generation to outnumber Baby Boomers, many Millennials seek out investments that reflect their lifestyles and values.

Increasingly we are being told that individual investors have a desire to be more intentional with their money. They want to support specific, results-driven causes so they can know what their investments will achieve. The dilemma is that their choices are largely limited by fund managers who group several issues together in thematic portfolios on investor’s behalf.

This increasing appetite for targeted, self-directed investment options, coupled with a growing number of nonprofit organizations looking for additional sources of funding, has opened opportunities for nonprofits to access the capital markets. We believe that the stage is now set for investors to influence social change and achieve a combination of financial and social returns in ways that were previously unachievable.

Access to Capital Markets

As a nonprofit starts to approach the point where it will exhaust traditional funding sources, it may be time to explore other financing options. Fortunately, the evolving landscape has resulted in an improved understanding among the financial community about how nonprofits, including CDFIs, function.

Investment bankers now try to match the increased demand from institutional accounts and individual investors by working with nonprofits to construct financing tools that create “win-win” solutions for both nonprofits and investors. The result is a collaborative effort toward developing long-term, sustainable funding programs. These can range anywhere from a private placement to a non-rated public bond, to the public issuance of investment-grade (IG) rated public bonds.

Private Placements

Generally, we see smaller organizations begin their initial entry into the capital markets with a private placement. Investors in these products are primarily institutional and may include foundations, insurance companies, asset managers and state and local pension funds. The growing interest from this investor base is both financial and altruistic. 

Some institutional investors, such as asset managers, have mandates for social impact investing within specific funds they offer. For other investors, there is a greater level of understanding than in the past about the proven, self-sustaining economics of nonprofits. Institutional investors are also increasing their holdings in the social impact sector because they want to finance specific social and environmental causes while receiving a financial return on their investment.

Non-Rated Public Bonds

Nonprofits looking for a wider distribution could choose to issue non-rated public bonds. This path may be preferable because securing a rating may not be the most cost-effective way to come to market, especially for smaller or less mature organizations.

Calvert Impact Capital has been a pioneer in tapping the capital markets to provide individuals a way to fund nonprofit initiatives. With a very successful non-rated program over the past 13 years, it has issued more than $400 million of bonds[2]. This program has allowed Calvert to increase its investments in organizations creating social and environmental impact. Investor interest has grown substantially as evidenced by the sales volume of Calvert Impact Capital Community Investment Notes®, increasing 31 percent annually since 2014[2].

Investment-Grade (IG) Public Bonds

A public bond issue with an investment-grade rating provides more readily available capital, further expands the investor base versus a non-rated bond and provides greater potential for the organization to grow its programs. In recent years, some CDFIs have attained Standard & Poor’s (S&P) IG ratings[3]. Having an IG rating enables the bond issue to be offered to a broader range of individual investors, allowing them to more easily participate alongside institutional investors. However, one added consideration for pursuing a rating is the potential for restrictions to amounts of debt issued or leverage an issuer can undertake.

The bar is set high to achieve an IG rating. Out of more than 1,000 CDFIs[4], only a handful have attained this status. Yet we have seen that an IG rating can be transformative in an organization’s capital raising.

Investment-grade public debt may be sold in a single issuance or in smaller amounts through programmatic issuance over time. The choice depends largely on the issuer’s funding needs and strategic funding plan. If it needs a larger amount of funds all at once to fund a specific program or project, then a single issuance would most likely be appropriate. If capital is required for continuous, but smaller funding needs, then a programmatic approach may be the better solution.

In April 2017, Local Initiatives Support Corporation (LISC) became the first CDFI to access the public capital markets by raising $100 million via a public offering of S&P AA rated bonds. With the scale and track record to secure an S&P AA rating, LISC found new investors to expand its capitalization and meet growing community development financing.

In October 2017, Capital Impact Partners became the first CDFI to issue programmatic, IG rated bonds. With a monthly offering cycle, S&P AA rated Capital Impact Investment Notes are available for as little as $1,000, allowing for broad-based access for individuals without excluding institutional investment. By finding new sources of capital, Capital Impact Partners has been able to amplify its projects focused on healthcare, education, affordable housing and community development nationwide.

The Future is Bright

As social impact investing expands to an ever-growing group of institutional and individual investors, becoming the norm and not the exception, the funding and investing environment will continue to evolve. The investment banking community will continue to find creative ways to meet the increasing demand for social impact investments and will be focused on working with nonprofits to identify capital market solutions for them. Nonprofits, with the ability to expand their positive social impact, will be exploring a wider continuum of financing options to capture the demand created by growing support for their work.

The results will be more powerful, broadly-available, long-term financing strategies that provide investment opportunities for all types of investors that deliver both financial and social returns. This backdrop will support the desired pathway to a more equitable and sustainable world.


Any financial product sold prior to maturity may be worth more or less than the original amount invested. Depending upon the specific product offering, investment risks include, but are not limited to, interest rate risk, credit risk, call risk and liquidity risk. Additionally, unless otherwise specified in the respective offering documentation, the product(s) discussed herein are not FDIC insured, may lose value, and are not bank guaranteed. Past performance is not indicative of future results.

Securities offered through Incapital LLC. Member FINRA/SIPC.  Incapital LLC is not affiliated with Calvert Impact Capital, Inc., Capital Impact Partners and Local Initiatives Support Corporation.  Incapital LLC serves as placement agent for Notes issued by Calvert Impact Capital, Inc. and Capital Impact Partners.

[1] The Rise of ESG Investing, InvestmentNews and Calvert Research and Management, October 12, 2017

[2] Source: Incapital LLC

[3] A credit rating is not a recommendation to buy, sell, or hold securities, and is subject to revision or withdrawal at any time, and without notice, by the assigning rating agency. Each rating should be evaluated independently of any other rating and investors should conduct thorough due diligence before investing.

[4] 2016 Trends Report: Community Investing Highlights, The Forum for Sustainable and Responsible Investment


Louise M. Herrle is a Managing Director in Incapital’s Capital Markets division. She has more than 35 years of experience in financial services and debt capital markets. Since joining Incapital in 2010, she has been the chief architect of the firm’s Legacy™ platform for distributing social impact investments. She also advises potential issuers in the social impact space. Previously, Ms. Herrle served as Chief Investment Officer at Chrysler Financial; Senior Managing Director, Treasurer and Head of Corporate Finance for Residential Capital (ResCap); Treasurer of Freddie Mac; and Senior Vice President and Treasurer of the Federal Home Loan Bank of Pittsburgh. 

Leave a Response

Your email address will not be published. All fields are required.