Investing Out and Spending Down: Creating a Beautiful Sunset

by Esther Park

In the face of international reports that the world only has 60 years of topsoil left, and just 12 short years until we face catastrophic climate change, the #NoRegrets Initiative decided to accelerate the pace of our philanthropy in particular and embarked on a 10-year spend down plan of those assets.  That seemed easy enough – we took our total philanthropic dollars and divided it by 10, and thus came to our target number for what we would put out in grants each year.  The first year we came short of that number, but told ourselves that as the regenerative agriculture movement accelerated, so too would our grantmaking.

In Year 2, we largely hit our target for grantmaking, but then were faced with the fact that we had millions of dollars in liquidity, mostly sitting in cash.  Was that really the best use of those funds?  Prior to the decision to spend down the philanthropic assets, we had invested some of that capital into third party funds – private equity and venture capital type of funds that were investing in social enterprises.  The #NoRegrets Initiative has always been about being in direct relationships with companies and organizations, but using the philanthropic assets in this way made sense as a way to leverage our capital while waiting to grant out those funds.  However, most funds average a 10-year life, which means we would not see most of that capital back for at least a decade.  In the context of a spend down, that strategy no longer made sense.  If we were to invest the millions we had in cash, we would need to make sure we could liquidate adequate number of dollars to be able to make our grants in any given year.  How could we do this in a meaningful way?

Given my background in community development finance, I knew there were loan fund intermediaries throughout the country that either offered notes to individual investors and/or took loans from banks and foundations to capitalize their funds.  So we set out to find the most mission-aligned funds out there.  Some of these were easy to find, being in our network already, and others we had to hunt down.  We started to map them out according to ability to liquidate, and the funny thing we found was that most note programs like to liquidate in odd numbered years (e.g. 1, 3, 5 and 7-year notes).  That was great, but how would we invest in notes that matured in even-numbered years?  It turned out that we could balance the maturities of our investments with loan funds that are willing to make customized arrangements with their capital providers, and we could make those liquidate in even-numbered years.

The result was a really beautiful portfolio of loan funds, two evergreen equity funds, a REIT, and one bank – all addressing food, agriculture, and rural communities.  Here we share with you that list in the hope of inspiring you to create your own beautiful portfolios.

• Boston Impact Initiative – This $10MM fund is an expansion on a pilot $5MM fund founded by Deborah and Michael Frieze (father and daughter) to address closing the racial wealth gap in the Boston metro area.  The fund utilizes a integrated capital strategy, using both loans and equity to finance minority-owned small businesses.  The fund is offering notes with maturities in 3, 5, and 7 years.  The 5-year notes are “philanthropic notes”, which carry a lower interest rate and are positioned as first loss.
• Iroquois Valley Farm REIT (IVF) – IVF purchases land that is or is transitioning to organic and leasing it to farmers in the Midwest and New England.  A past investee, IVF offers 5-year notes as well as equity positions. 
• California Farmlink – A small Community Develompent Financial Insitution (CDFI) loan fund making operating loans and mortgages to farmers in rural communities surrounding the Bay Area.  Also a past investee and grantee, CA Farmlink offers 2, 3, 5, and 7-year notes to the general California public for a minimum of $1,000.  
• Montage Capital – A current investee, the mezzanine debt fund has a Social Impact sidecar fund.  The fund is raising additional capital with liquidity options beginning 5 years from investment
• Craft 3 – Craft 3 is a CDFI loan fund serving rural Oregon and Washington, primarily making small business loans and providing technical assistance.  The organization offers 1,2,3, and 5-year notes to the general public.
• Aqua-Spark – Aqua-Spark is an open-ended fund focused on businesses (globally) improving farmed fishing operations to be more ecologically appropriate.  The fund is taking investments on a rolling basis, offering liquidity as early as one year.
• Natural Capital Investment Fund (NCIF) – Spun out of The Conservation Fund, NCIF is a rural-focused CDFI based in North Carolina, serving Central Appalachia and the Southeast.  The fund makes small business loans, including to farmers and agri-businesses, having recently doubled their lending to entrepreneurs of color.  Of note, NCIF has also recently launched the RESEED Recovery Fund to provide low-interest, easy to access loans to farmers affected by hurricanes in North and South Carolina.  
• Coastal Enterprises Inc. (CEI) – CEI is another rural CDFI based in and focused on small business enterprises in Maine and Northern New England.  CEI has been a strategic partner to #NoRegrets investee Dirt Capital, and has a portfolio of farms/agribusinesses as well as renewable energy projects.  
• Mountain Association for Community and Economic Development (MACED) – Based in Berea, KY, MACED is also a rural CDFI focused on small business loans and technical assistance throughout Central Appalachia and Eastern Kentucky.  
• Equity Trust – Equity Trust is a small loan fund based in Western Massachusetts, whose mission is “to promote equity in the world by changing the way people think about and hold property”.  The organization primarily makes loans to farmers throughout the US, and has a deep interest in alternative ownership models.  
• Native American Bank – Headquartered in Colorado with operations also in Montana, the bank is primarily owned and governed by tribes, and makes loans to Native American-owned and run businesses.  This investment will be a standard bank deposit, federally insured by the FDIC.
• Hope Enterprise Corp. – Based in the Mississippi Delta, Hope is a local credit union serving underserved communities in the area with both retail banking and commercial lending.  At this time, we have not bee in contact with the company, but are awaiting additional information from another investor making a site visit.

Esther Park is CEO of Cienega Capital, an investment company utilizing an integrated capital approach to systemic change in the areas of soil health, regenerative agriculture, and local food systems.